Over-the-counter market

An over-the-counter market is a decentralized network where parties trade financial instruments directly, often through dealers, rather than on a centralized exchange. Its trading terms can be negotiated privately.

Broker-dealer: A financial firm or individual that trades securities for its own account and for clients. Broker-dealers often connect buyers and sellers and may act as counterparties in OTC trades.
OTC derivatives: Derivative contracts negotiated privately between counterparties rather than traded on an exchange. They are a major OTC market segment, with terms tailored to counterparties' needs.
Stock exchange: A regulated marketplace that brings together buyers and sellers of securities under common trading rules. An exchange centralizes trading and often publishes quotes, unlike decentralized OTC dealing.
Counterparty risk: The risk that the other party to a financial contract will fail to meet its obligations. Direct bilateral trading can leave each OTC participant exposed to the other's default.
Market maker: A participant that regularly quotes prices at which it will buy and sell an asset. Market makers supply OTC liquidity by standing ready to trade at quoted prices.
Foreign exchange market: A global market for exchanging national currencies, conducted largely through decentralized dealer networks. Its distributed trading structure is a prominent example of an OTC market.
Exchange-traded derivative: A standardized derivative contract traded on an organized exchange. Its standard terms and exchange trading differ from individually negotiated OTC contracts.
Market transparency: The degree to which information about prices, orders, and completed trades is available to market participants. Private negotiation and fragmented quotes can make OTC prices less visible than exchange prices.
Bid–ask spread: The difference between the highest price a buyer offers and the lowest price a seller accepts. In dealer-based OTC trading, this spread is a key component of transaction costs.
Corporate bond: A debt security issued by a company to borrow money from investors. Many corporate bonds trade through dealer networks rather than centralized exchanges.

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