Recently, many people have been asking what over-the-counter (OTC) trading is, so I’ll share my understanding.

Simply put, OTC is an abbreviation for Over The Counter, which in Chinese is called “OTC trading.” It’s different from buying stocks on a stock exchange. In OTC trading, the buyer and seller directly negotiate the price with each other, and the trades are carried out through banks, brokers, or electronic systems—so it’s also known as counter trading or the OTC market.

Why does this kind of trading exist? Because some companies don’t meet the requirements for listing, or they aren’t large enough yet, but they do have investment value—so they can only be traded OTC. Some companies may also choose OTC even if they qualify for listing, to avoid disclosing too much information publicly. With the development of the internet, the OTC market has grown rapidly and has become a choice for many investors.

What can you trade OTC? Stocks, bonds, foreign exchange, cryptocurrencies, and derivatives—all are possible. Among them, stocks are the largest investment market, but OTC stocks mainly involve small and medium-sized companies or startups. Cryptocurrency is also commonly traded OTC, and it’s even possible to purchase large amounts of crypto in a single transaction, which is difficult to do in dedicated cryptocurrency markets.

In Taiwan, the OTC market is operated by the TPEx (GreTai Securities Market). Investors place orders through brokers, and the orders are uploaded to an automatic matching system that pairs trades based on price priority and time priority. The trading rules are almost the same as those in the listed market: there are price limits, call auctions, matched trades, and the settlement system is T+2. Every day, 08:30 to 09:00 is the pre-market session, 09:00 to 13:30 is the normal trading session, and after-hours pricing is from 13:40 to 14:30. The price fluctuation limits are also ±10%.

When comparing on-market trading and OTC trading, the main differences are in several areas. On-market trading is standardized and centralized, with strict regulation and high trading transparency, but liquidity is limited. OTC trading is non-standardized and decentralized, with relatively looser regulation. Trading is more flexible and diverse, offering more investment options, and it also provides greater leverage flexibility. The trade-off is that price transparency is lower, liquidity may be insufficient, and risks are relatively higher.

The advantages of OTC trading are very clear. First, it gives you access to more investment types, such as derivatives, contracts for difference, and foreign exchange trading. Second, trading is more flexible, and products can be customized. Third, there are more leverage choices, so you can use higher leverage to amplify returns. Some legitimate OTC trading platforms are also improving security measures, such as risk assessments, KYC identity verification, and complaint-handling mechanisms.

However, risks also cannot be ignored. The biggest problem is the lack of unified regulation, and there are indeed fraudulent brokers in the market. Insufficient liquidity means you might not be able to get a good price. Market volatility is high, so investors don’t receive the publicly transparent information that centralized exchanges provide. Some instruments experience severe price fluctuations with low liquidity. You also need to guard against criminals using false information to lure people into getting deceived.

So, is OTC trading safe? Not absolutely unsafe, but it is definitely riskier than on-market trading. The key is choosing the right broker. Legitimate brokers should be subject to multi-layered regulation and have strong risk control capabilities. Next, choose mature trading products and understand information such as spreads and liquidity. Finally, trade through official platforms to ensure that appropriate investor protection measures are in place.

In the end, OTC trading is like the most basic supply-and-demand rule in economics at work. Compared with the standardization and transparency of on-market trading, OTC trading offers more freedom and possibilities. But the higher the freedom, the higher the requirements placed on investors. You need more market knowledge, sharper information sensitivity, and stronger risk awareness. To “strike gold” in OTC trading, choosing the right targets is only the first step—the real protection comes from finding reputable brokers.