Glossary
Over the counter (OTC)
Trading in securities that are not listed on a national exchange, arranged through broker-dealer networks such as the OTC Markets tiers.
On this page
Over-the-counter (OTC) trading means buying and selling securities outside a national stock exchange such as the NYSE or Nasdaq. Instead of a central exchange order book, trades are arranged between broker-dealers, often through quotation systems run by firms like OTC Markets Group. For stocks, "OTC" usually signals a smaller, thinner and less regulated corner of the market, though the label covers a far wider world that includes most bonds and many derivatives.
How it works
A company's shares trade OTC when they are not listed on an exchange. That happens for several reasons: the company is too small to meet listing standards, it was delisted after failing them, or it is a large foreign firm that chose not to list in the US and trades here as an unsponsored American depositary receipt (ADR).
OTC Markets Group sorts quoted stocks into tiers by how much information the company provides:
- OTCQX — the top tier, with financial and governance standards.
- OTCQB — a venture tier for early-stage companies that must be current in their reporting.
- Pink — the broadest tier, where disclosure ranges from full to very little.
Prices come from dealer quotes. Trading still happens during normal market hours through your broker, and FINRA oversees the broker-dealers involved.
What to watch for
OTC stocks often have low volume, wide spreads and limited public financial data, which makes them easier to manipulate. Many are penny stocks, and the SEC has repeatedly warned about pump-and-dump schemes in this space. Some brokers restrict or charge extra for OTC trades. Bonds and swaps are a different story: they trade OTC by design, between large institutions.