How Stocks are Traded in Exchanges and OTC?

Want to learn about the trading of stocks in exchanges and OTC? Both exchange and OTC (Over the counter) refers to a medium where trading of financial securities and financial instruments take place.

Off-Exchange or over-the-counter trading takes place between two parties only without exchange regulations. Whereas in exchange all trading takes place under exchanges supervision. A stock exchange also has the perks of providing transparency and supporting current market prices along with facilitating liquidity.


Most stocks trade on Exchanges for instance NYSE (New York Stock Exchange) Or NASDAQ. Stock exchanges facilitate the process of buying and selling of stocks in the market among the investors.

Who are the Regulators of the Stock Market Exchange?

Exchange-traded stocks are regulated by government agencies referring to the Securities and Exchange Commission (SEC) in the United States, which overlooks the market and protect the investors from investing in fraud and maintains the smooth functioning of exchange in the market.

An Alternate to the Stock Exchange

Usually, most of the stocks are traded in the exchange market but there is also another place where stocks are traded generally know as OTC (Over the counter).

Here trading of stocks generally trades by a “dealer” or “market maker” who deals in the stocks specifically. OTC stocks are those stocks that fail to meet the basic requirements to be enlisted in stock exchanges.

OTC V/s Stock Exchange Market

OTC stocks vary in regulations for the public compared to stocks listed in an exchange. So, the information provided on the companies issuing stocks is not easy to reliable and trustworthy. In other words, it is way riskier than stocks listed in Exchange because of the trust, security, reliability, and many other factors that all seems missing in OTC.

Apart from security features, buying and selling of shares in the OTC market are usually much more thinly traded in comparison to a stock listed over stocks exchange, meaning investors mostly have to deal with a high spread meaning a large difference between the bid price and ask prices for the stocks listed in the OTC. However, stocks listed on the stock exchange generally have small bid-ask spreads with much more liquidity.

All traders are generally advised irrespective of their experience to opt for stocks exchange than OTC.

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