Recently, someone asked me why some companies' stocks can't be found on major exchanges but are still tradable. This involves the concept of the OTC market.

Simply put, OTC is over-the-counter trading, which is the full name of Over The Counter. Its existence solves a problem: not all companies with investment value meet listing requirements. Some small and medium-sized enterprises, startups, or companies that choose not to disclose too much information trade on the OTC market. Buyers and sellers do not trade within centralized exchanges but negotiate prices directly through banks, brokers, phone calls, or electronic systems.

Speaking of Taiwan's OTC market, we have to mention the OTC Securities Exchange. Taiwan's stock market is divided into two systems: the Securities Exchange and the OTC Securities Center. Why are they separated? Because the government hopes that listed companies have a certain scale, but overly strict requirements can hinder startup development. Therefore, the OTC center has lower thresholds; companies only need to be recommended by more than two advisory brokers to be listed, and if they perform well within six months, they can apply to transfer to the main board. This design is quite flexible.

The products traded on the OTC market are very diverse. Besides stocks and bonds, there are foreign exchange, cryptocurrencies, options, futures, and other derivatives. Especially cryptocurrencies, which can be purchased in large quantities in a single transaction on the OTC market, something that is difficult to do in specialized markets.

The operation process of Taiwan's OTC is quite similar to that of the listed market. Investors place orders through brokers, which are uploaded to the OTC center's automatic matching system, pairing trades based on price priority and time priority. Trading sessions are divided into pre-market, regular trading, and after-hours pricing, with a call auction every five seconds. Price fluctuation limits are ±10%, just like listed stocks. The settlement system is T+2, completely consistent.

Compared to on-exchange trading, OTC markets are quite different. On-exchange products are standardized, trading is through centralized bidding, all information is publicly transparent, liquidity is high, but trading methods are limited. OTC trading, on the other hand, involves non-standardized products, direct negotiation between buyers and sellers, lower transparency, less liquidity, but much more flexible trading methods. On-exchange trading is strictly regulated by the government, while OTC trading is relatively less regulated.

The advantages of OTC markets include more investment options, flexible trading, and greater leverage. You can customize trading plans according to your needs without many of the restrictions of on-exchange trading. But risks also exist. The lack of unified regulation, insufficient liquidity, low transparency, and the risk of encountering fraudulent brokers are all pain points of the OTC market.

So, is OTC over-the-counter trading safe? Not absolutely. Compared to on-exchange trading, the risks are indeed higher. But that doesn't mean participation is impossible. The key is to choose regulated brokers with sufficient risk management capabilities. Also, select mature trading products, understand details like spreads, liquidity, and withdrawal procedures. Some legitimate platforms offer risk assessments, KYC identity verification, complaint handling, and other protective measures.

In summary, the OTC market is a more flexible but riskier trading environment. For experienced investors, understanding the characteristics of OTC markets and choosing safe trading partners are prerequisites for participation.