Exploring Over The Counter Investing

The emergence of over the counter trading has redefined the manner in which businesses are being conducted between sellers and buyers of a particular product or service. The over the counter market is deviated from the usual formal, regulated market. Over the counter stocks are defined as contracts that consist of two parties who have come up with a common understanding of the manner in where the trade will be conducted. As long as the terms and negotiations are legal and generally acceptable by law, the two parties can come up with a set up that is mutually agreeable.

Over the counter trading allows for the trading of financial instruments directly between two parties. These include bonds, stocks and commodities. The goods and services as well as the payment are done directly by the two parties. It is therefore necessary for the two parties to become directly involved with the business. Communications and negotiations are mostly done via telephone, the facsimile machine and electronic networks instead of the traditional physical trading floor.

One of the important characteristics of over the counter markets is that they are localized, particularly focusing on specific commodities. The two parties obtain the intervention of intermediaries or network of brokers carrying inventories of securities that organizes the buy and sell actions of their investors. These set of dealers are responsible for the negotiation of the prices for the buyers and the sellers. The processes of OTC transactions are relatively simple. The person who wishes to generate a sale would contact a broker. The broker is responsible for representing the seller and would then contact the brokers representing the buyers in order to seal a deal.

Another outstanding characteristic of an over the counter trade is that, they are primarily delivery based. Engaging in over the counter investment poses a huge risk to investors as the success of the negotiations relies on each party's ability to honor the deal and their efficiency in carrying out their part of the deal. Therefore, it is important for many businesspersons to have sufficient knowledge of those who they are dealing with. This calls for thorough background checks on the companies' or person's reputation, trustworthiness and performance.

Over the counter trading emerged from the fact that not all companies are qualified to pass the requirements needed to be included in exchange listings. This type of trade, therefore, is perfect for small companies. Among the derivatives that are frequently traded over the counter, include exotic options, swaps and forwards rate agreements. Among the advantages that can be derived from investing in over the counter trade is that the market is comparatively larger than that in exchange trade. The fact that it is unregulated allows for ultimate freedom between the two parties. The two parties are provided with independence in creating their own terms and conducting their negotiations. The buyer and sellers are afforded with the opportunity to come up with an agreement that they are most comfortable with and one in which both can profit more.