There are some times when you hear a dealer in the stock markets refer to the OTC market and wonder what it means. The OTC market actually means over-the-counter market, and this term refers to an organized system where trading does not take place in a physical area. It is conducted via dealer networks.
When it comes to the origins of this unique term OTC, it can be linked to the off-Wall Street trade that became really popular for the bull market during the 1920s. This was an era when shares were sold off the counter in shops that dealt with the buying and selling of stocks. In simple terms, they were unlisted as they were not on the stock exchange.
Kavan Choksi Singapore- delving deep into OTC market trading
Kavan Choksi Singapore is a business and finance expert with sound knowledge in investments, trading of stocks, and investments. He is also interested in fine arts and helps people with essential tips on how to invest in the stock markets. He explains the difference between the primary and secondary markets to investors so that they are aware of how both of these marketplaces work. Contrary to popular belief, the direct and the secondary markets are not the same. The primary market is the place where companies release their stocks to the public for the first time. The transactions here are conducted by the company and the people.
When it comes to the secondary market, the company is not involved in the buying or selling of stock. Known as the stock market, one investor buys company stocks from another investor. For instance, if an investor wants to buy Amazon stock in the marketplace, the transaction is not between the investor and Amazon- it is between the investor and a trader who holds Amazon stock and is willing to sell it to him at a profit in the market.
The evolution of the OTC market over time
With the passage of time, the OTC market started to change. In 1971, the National Association of Securities Dealers (NASD) created NASDAQ with the target of boosting liquidity in companies that were involved in trading activities via dealer networks.
During this time, some notable regulations were imposed on shares that were trading over the counter. This was something the NASD wanted to improve, and with time, Nasdaq evolved to become a significant exchange, but in the process, the term over-the-counter trading has become confusing for many traders, especially beginners, to the financial markets.
Kavan Choksi Singapore states that the term “over-the-counter” refers to those stocks not trading on any stock exchange like Nasdaq, the New York Stock Exchange (NYSE), or The American Stock Exchange (AMEX). The above term also means stock trading is carried out on the OTC bulletin board (OTCBB) or something that is known as the “pink sheets.” Traders must be aware that these networks are not stock exchanges with listed shares of companies for traders.