Definition
OTC trading can involve a dealer, broker, or bilateral agreement. Parties agree on asset, quantity, price, and settlement terms. Large transactions often use this route to seek a single quote and reduce the visibility of their order, though OTC is not restricted to large trades.
How It Works
A buyer may request a quote for a specified amount, compare its terms, and accept before it expires. Settlement then follows the agreement, potentially through custody or escrow arrangements. A negotiated quote can incorporate the dealer’s compensation even when no separate commission is displayed.
Key Considerations
A private quote does not guarantee a better price or eliminate market impact: the dealer may hedge elsewhere. Counterparty performance and settlement arrangements are central risks. Confirm who supplies assets, when each side pays, and what protections apply before treating an accepted quote as a completed transfer.