Over the Counter

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A market conducted directly between dealers and principals via a telephone and computer network rather than a regulated exchange trading floor.

Stocks of small companies, bonds, and other securities that aren’t traded over a formal exchange can be traded over the counter. In over-the-counter markets, dealers, also known as market makers, buy and sell securities from their own inventories. As such, if an investor wanted to buy or sell a certain security, he would contact a dealer of the particular security and ask for appropriate bid or ask price.

In the U.S., the OTC Bulletin Board (OTCBB) is a popular electronic inter-dealer quotation system through which over-the-counter securities are traded. The OTCBB, and other inter-dealer quotation networks such as Pink Quote, is regulated by the Financial Industry Regulatory Authority (FINRA).

Forex trading also takes place in over-the-counter markets as transactions are executed outside of a centralized exchange. This is what allows forex traders to trade 24 hours a day as trading isn't limited by the market hours of a formal exchange such as the New York Stock Exchange. Instead, traders are able to buy and sell currencies through a network directly connecting various banks, dealers, and brokers.

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