Exchange Traded vs. Over the Counter

Posted by Pierre de la Fortune on December 28, 2015 @ 12:01 a.m.

Written by Glyn A. Holton

Some financial or commodities instruments are traded on established exchanges. Examples include most highly-capitalized stocks, which trade on exchanges such as the New York Stock Exchange, and futures, which trade on futures exchanges such as the Chicago Board of Trade. These instruments are called exchange traded.

An instrument is traded over-the-counter (OTC) if it trades in some context other than a formal exchange. Most debt instruments are traded OTC with investment banks making markets in specific issues. If someone wants to buy or sell a bond, they call the bank that makes a market in that bond and ask for quotes. Many derivative instruments, including forwards, swaps and most exotic derivatives are also traded OTC. In these markets, large financial institutions serve as derivatives dealers, customizing derivatives for the needs of clients.

For more info please visit: http://www.riskglossary.com/link/exchange_traded.htm

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Money Blitz Word of the Day

Spread: The difference between the bid and asked prices of a security, which may also be called the broker's markup. In options and futures trading, a spread is the practice of simultaneously buying a contract for the delivery of a commodity in one month and selling a contract for delivery of the same commodity in another month. The aim is to offset possible losses in one contract with possible gains in the other. Stock Broker: A financial services professional who provides financial advice to clients regarding their investments. Stock brokers typically work for a larger institution, such as a bank or 揵rokerage firm. Individual 揵rokers are sometimes referred to as 搃nvestment advisors or 揻inancial planners.

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