Over-The-Counter - OTC
Categories: Investing, Managed Funds
Buy drugs? The um…non-prescription kind? Nyquil. Tylenol. Preparation H? Yeah. Then you’ll buy them over the counter.
Prescription drugs? Those are different. Much more highly inspected. Regulated. Structured.
Well, stocks work the same way. When you trade over the counter, you’re generally trading within a network of other dealers all trading stocks.
Think of it like…everyone on Facebook had a trading account. Nothing really is supervised or regulated or controlled. It’s just a transaction happening among two strangers in the night… exchanging glances.
Get a fair deal on this trade? Well, on the exchanges, Amazon was offered for $1,502 a share; but on the OTC deck network, it’s offered at $1,507. Maybe you’ll have overpaid 5 bucks a share for Amazon if you buy it here rather than on NASDAQ, which is a normal securities exchange.
Stocks, bonds, commodities, derivatives: They all trade OTC and also on exchanges. So why are there both methods of trading in the first place?
Well…demand. If everybody was happy with the trades they made from 9:30 to 4 New York time, then there wouldn't be a whole lot of demand for trading outside of those hours.
But there is.
So there is.
And OTC trading accommodates after hours trading, which can be a really big deal when a company announces earnings at 4:30 pm New York time, and the Street either loves or hates the numbers they’ve printed.
The stock can move a lot in a short period, so a lot of investors are happy to be able to either dump or scarf up positions in whatever.com at 4:32 pm after the numbers have been published, not wanting to wait the dozen and change hours until the market opens again in the morning.
The basic idea behind OTC trading is that the world of OTC is kind of the wild wild west of stock exchanges. Unlike trading on the NYSE, where companies have to meet a very high standard to be accepted for trading on the exchange.
To qualify for OTC trading, companies basically have to spell their name properly. And even then, there’s, uh...a lot of flexibility...
#TK FIX CONC