Recently, while studying the over-the-counter (OTC) market, I found that many investors are still fairly unfamiliar with OTC trading. Today, I’d like to share some practical observations.

Many people only know how to buy stocks on centralized exchanges, but there’s actually another world—the OTC market. In simple terms, OTC trading is when the buyer and seller negotiate the price directly with each other, without going through a formal exchange’s order-matching process. It may sound a bit complicated, but in practice, Taiwan’s over-the-counter (OTC) trading center is a representative example of this model.

Why does something like OTC trading exist? Mainly because many small and medium-sized enterprises and startups simply cannot meet the listing requirements, but they may still have real investment value. The government therefore established the OTC trading center to allow these companies to list as long as they are recommended by at least two sponsor securities firms. The advantage is that it lowers the entry threshold for companies, but the downside is that the market can be a mixed bag—meaning risks are relatively higher.

When it comes to how OTC trading works, Taiwan’s process is actually quite similar to that of listed stocks. You place orders through a securities firm, and the orders are uploaded to the OTC trading center’s automatic matching system. The system matches trades based on price priority and time priority, and determines trade executions accordingly. Trading hours are from 9:00 AM to 1:30 PM, with a call auction held every 5 seconds. The price fluctuation limit is also ±10%, just like listed stocks. The settlement system is T+2, meaning settlement is completed two business days after the trade.

What’s appealing about OTC trading? First, there’s a wider variety of products. Besides stocks and bonds, there are also foreign exchange, cryptocurrencies, derivatives, and more. Especially for cryptocurrencies, the OTC market allows you to purchase a large amount of assets at once—something that’s difficult to achieve in dedicated crypto markets. Second, trading is more flexible—you can customize trading methods and product specifications, and there are more options for leverage ratios, unlike exchange trading, which is more restrictive.

That said, I have to be candid: OTC trading does carry higher risks. There are three main reasons. First, regulation is relatively lax, and there are no unified rules, so it’s easier for fraudulent brokers to operate. Second, liquidity is not as good as in exchange trading, so you may not be able to buy at the price you want. Third, information is less transparent—there are bad actors in the market who may use false information to lure investors.

Compared with the openness and transparency of exchange trading, OTC trading is closer to the most fundamental supply-and-demand principle in economics: once the buyer and seller agree on a price, the trade happens. This means information is more important than capital. People who understand the rules can earn excess returns, while those who don’t are easy to end up losing money.

So if you want to participate in OTC trading, the most critical thing is to choose the right broker. Make sure they are subject to proper regulation and have strong risk-control capabilities. At the same time, choose mature trading products and understand details such as spreads and liquidity. Some reputable platforms will provide investor protection measures, such as risk assessments, KYC identity verification, and complaint-handling mechanisms—these can help reduce risk.

My personal advice is: if you’re a beginner, start by learning the basic rules of OTC trading, choose platforms with good liquidity and strict regulation, and begin with small amounts to try. OTC trading opportunities do exist, but the prerequisite is that you have sufficient risk awareness and market knowledge. Don’t be misled by promises of high leverage and high returns—rational investing is the choice of long-term winners.