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Over-The-Counter - OTC

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Over-The-Counter - OTC
The phrase "over-the-counter" can be used to refer to stocks that trade via a dealer network as opposed to on a centralized Exchange.
    
It also refers to Debt securities and other financial instruments such as derivatives, which are traded through a dealer network.  In general, the reason for which a stock is traded over-the-counter is usually because the company is small, making it unable to meet Exchange listing requirements. Also known as "unlisted stock", these securities are traded by Broker-dealers who negotiate directly with one another over computer networks and by phone.
    
Although NASDAQ operates as a dealer network, NASDAQ stocks are generally not classified as OTC because the NASDAQ is considered a stock Exchange. As such, OTC stocks are generally unlisted stocks which trade on the Over the Counter Bulletin Board (OTCBB) or on the Pink Sheets. Be very wary of some OTC stocks, however; the OTCBB stocks are either penny stocks or are offered by companies with bad credit records.
    
Instruments such as bonds do not trade on a formal Exchange and are, therefore, also considered OTC securities. Most Debt instruments are traded by investment banks making markets for specific issues. If an investor wants to buy or sell a Bond, he or she must call the bank that makes the market in that Bond and asks for quotes.
    
The OTC market presents investment opportunities for informed investors, but also has a High degree of Risk. Many OTC issuers are small companies with limited operating histories or are economically distressed. Investments in legitimate OTC companies can often lead to the complete loss of the investment. Investors should avoid the OTC market unless they can afford a complete loss of their investment. Investors should never purchase any Security without first evaluating the fundamentals of the company and carefully reviewing the financial statements, management background and other data.
Posted by  Henley & Partners Group Holdings Ltd
 
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