Recently, a friend asked me why some companies' stocks can't be found on the exchange. The answer is quite simple—they might be traded over-the-counter (OTC). Today, let's talk about what the OTC market is and how it differs from traditional exchanges.

What is OTC? Full name Over The Counter, which in Chinese means off-market trading or over-the-counter buying and selling. Simply put, investors don't trade on centralized exchanges but directly through banks, brokers, phone calls, or electronic systems. This market is also called the dealer market or over-the-counter market. Its biggest feature is that prices are not set through uniform bidding like on exchanges but are negotiated directly between buyers and sellers.

Why does the OTC market exist? Mainly because many companies do not meet the listing requirements, especially small and medium-sized enterprises and startups. Some companies that do qualify for listing also choose OTC trading to avoid excessive disclosure of information and competitive pressure. With the development of the internet, the OTC market has rapidly expanded and has become an increasingly popular choice for investors.

Regarding what can be traded in the OTC market, the scope is actually very broad. Besides stocks and bonds, it also includes financial derivatives, foreign exchange, cryptocurrencies, and more. Among these, cryptocurrencies are particularly interesting because OTC markets allow for large one-time purchases of crypto assets, which is difficult to do on dedicated crypto exchanges.

In Taiwan, the OTC market operates as follows: investors place orders through brokers, which are uploaded to the OTC Clearing Center’s matching system. The system matches trades based on price priority and time priority. The technical rules are synchronized with those of the stock market, requiring no additional steps. Trading hours are pre-market 08:30-09:00, regular trading 09:00-13:30, and after-hours pricing 13:40-14:30. Price fluctuation limits are also ±10%, just like listed stocks. Settlement is T+2, meaning settlement is completed two business days after the trade.

Comparing on-market trading and OTC markets, the differences are quite clear. On-market trading is standardized, involves centralized auction, is conducted on exchanges, under strict regulation, highly transparent, and has large trading volumes. OTC markets are non-standardized, negotiated, decentralized, with relatively looser regulation, lower transparency, and smaller trading volumes. A simple analogy: on-market trading is like buying gold at a bank—every bank offers the same; OTC is like pawning—each pawnshop is different, but they offer a wider variety of tradable items.

The advantages of OTC markets are indeed significant. First, they offer more investment options, including derivatives, contracts for difference (CFDs), foreign exchange, and more. Second, trading is more flexible; products can be customized, and leverage options are more abundant. Nowadays, many legitimate OTC trading platforms are continuously improving their security, with risk assessments, KYC identity verification, complaint mechanisms, and other protective measures.

However, risks also exist. OTC markets lack unified regulations and are relatively loosely regulated, so there are some fraudulent brokers operating within. Liquidity is lower than on exchanges, which may lead to unfavorable prices. Market volatility can impact investments, and investors don’t have access to the same transparent information as on exchanges. Some malicious actors even use false information to scam investors.

Is OTC trading safe? Honestly, compared to on-market trading, OTC does carry risks. But it’s not entirely unsafe. The key is to choose reputable brokers that are properly regulated and have strong risk management. Also, select mature trading products, understand spreads, liquidity, and other relevant info. Finally, use legitimate platforms for OTC trading—these platforms usually have investor protection measures in place.

Ultimately, OTC markets provide investors with more choices and flexibility, but only if you can identify risks and select legitimate platforms and brokers. If you're interested in exploring OTC markets, start by learning the basics, and choose products with good liquidity and solid regulation, such as mainstream forex or cryptocurrencies. Recently, many investors have been paying attention to OTC opportunities on platforms like Gate. If you're interested, you can check them out yourself.