Over the counter (OTC)

Deals in any security can be done in two ways. One is via a regulated public market such as the London Stock Exchange. But many transactions are done privately between counter parties and with no exchange involved. These are known as over the counter, or OTC.

OTC deals have a number of advantages for each party, including the fact that details of the trade are not published. Furthermore, in many markets OTC deals are subject to less regulatory scrutiny as they are not generally open to the investing public.

However, OTC deals also have their critics, who complain that the existence of ‘dark pools of liquidity’ – large deals being done regularly off-exchange – exclude private investors from the best trades.

• See Tim Bennett’s video tutorial: What is an index?

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