What does 'OTC' stand for in financial terms?

In financial terms, 'OTC' stands for Over The Counter. This refers to the process of trading securities directly between two parties rather than through a centralized exchange. OTC transactions are often facilitated by broker-dealers who negotiate the terms of the trade, including price and volume. This method is commonly used for trading stocks that are not listed on formal exchanges, as well as for derivatives, currencies, and bonds.

The OTC market provides greater flexibility in terms of trade execution and can offer access to a wider variety of financial products. It is also characterized by less regulation compared to formal exchanges, which can lead to both opportunities and risks for investors. Understanding the concept of OTC trading is crucial for anyone engaged in financial services, as it plays a significant role in providing liquidity and pricing for various types of securities.

Recognizing this term's significance aids in comprehending how various market dynamics operate outside of conventional trading environments.