Recently, I’ve noticed that many investors around me are discussing an interesting phenomenon—some companies cannot be found on mainstream exchanges but can be traded elsewhere, which is the world of OTC over-the-counter trading.

Simply put, OTC trading (Over The Counter) refers to buyers and sellers bypassing centralized exchanges and directly negotiating transactions through brokers, banks, or electronic systems. Taiwan’s OTC Securities Exchange is a typical OTC market, where many small and medium-sized enterprises and startups are traded. These companies may not meet listing standards or simply do not want to bear the disclosure pressures of being listed, so they choose OTC trading.

I’ve observed that the main reason OTC trading attracts investors is because it offers more options. Besides small stocks, you can also trade foreign exchange, cryptocurrencies, derivatives, and other non-standardized products. The trading rules are more flexible, allowing buyers and sellers to negotiate prices themselves, unlike the restrictions of auction-based trading on exchanges. Leverage options are also more abundant, enabling higher capital utilization.

But it’s important to clarify—behind the convenience of OTC trading lies risk. First, regulation is loose. Exchange-traded markets are strictly regulated by the government, and companies must regularly disclose financial reports, but OTC markets are not as strict, leading to information gaps. Second, liquidity issues—OTC markets have lower trading volumes, so you might want to buy at a certain price but can’t, or want to sell but no one is willing to buy. There’s also counterparty credit risk—if your trading partner encounters problems, your funds could be at risk.

Taiwan’s OTC market operates quite similarly to the listed market. Investors place orders through brokers, which enter the orders into the OTC center’s matching system, prioritizing price and time. Trading hours are from 9 a.m. to 1:30 p.m., with a call auction every five seconds, price limits are ±10%, and settlement is T+2, all of which are the same as for listed stocks.

I’ve summarized the differences between on-exchange and OTC over-the-counter trading. On-exchange trading involves standardized products, transparent auction processes, strict regulation, and large trading volumes, but fewer product types. OTC trading involves non-standardized, negotiated transactions, looser regulation, and diverse products, but with lower transparency and liquidity. To use an analogy, on-exchange trading is like exchanging currency at a bank—each bank is the same; OTC trading is like pawning—each pawnshop is different, but they offer more types of items.

For investors, the appeal of OTC trading lies in growth potential. It attracts small and emerging companies with high volatility but strong thematic prospects, offering opportunities to discover truly promising targets. However, because these companies are small, they are more susceptible to news and market sentiment, and their stock prices can be highly volatile.

Regarding safety, my view is—there’s no absolute safety, only relative caution. OTC trading indeed carries higher risks, but that doesn’t mean it’s completely off-limits. The key is to choose the right broker. Legitimate platforms will have investor protection measures such as risk assessments, KYC verification, complaint mechanisms, and more. Second, select mature trading products and fully understand their characteristics. Lastly, don’t be fooled by false information—there are indeed bad actors exploiting information gaps in OTC markets to scam people.

Overall, OTC trading is a double-edged sword. If you have sufficient market knowledge, risk awareness, and patience to research targets, this market can offer opportunities unavailable on traditional exchanges. But if you just follow the trend or are attracted by promises of high returns, the risks will far outweigh the rewards. Choosing the right broker, selecting good targets, and doing thorough homework are the proper ways to profit in the OTC market.