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Exchange Traded vs OTC Markets

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Exchange Traded vs OTC Markets

  1. 1. EXCHANGE TRADED VS OTC MARKETS Prepared by: Walid Saafan
  2. 2. Exchange traded market  Stock trades conducted via centralized place.  Examples: NYSE, The Egyptian Exchange, ..  Buy/ Sell is conducted through the exchange; no direct contact between seller & buyer; Exchanges acting as a counterparty to all trades. 16 September 2013 2 Exchange taraded vs otc markets
  3. 3. 16 September 2013Exchange taraded vs otc markets 3
  4. 4. Exchange traded market advantages  Removes counterparty risk; trade obligations guaranteed.  All trade flow through one central place; price quoted for an instrument is always the same regardless of the size of trading entity.  All firms that offer exchange traded products must be members and registered with the exchange; greater regulatory, safer place for individuals trade. 16 September 2013 4 Exchange taraded vs otc markets
  5. 5. Exchange traded market disadv.  Higher cost due to the regulatory constraints.  Increased transaction cost due to the exchange fees and commissions. 16 September 2013 5 Exchange taraded vs otc markets
  6. 6. OTC market  No centralized place where trades are made.  Market is made up of all participants in the market trading among themselves.  Example FOREX. 16 September 2013 6 Exchange taraded vs otc markets
  7. 7. OTC market 16 September 2013Exchange taraded vs otc markets 7
  8. 8. OTC – advantage  Heavy competition to attract the most traders and trading volume to their firm.  Lower transaction cost compared to Exchange market.  Firms can set up their instrument prices.  The quality of execution varies from firm to firm for the same instrument. 16 September 2013 8 Exchange taraded vs otc markets
  9. 9. OTC – disadvantage.  Some firms offer trading to operate in dishonest way due to the low barriers to enter the market and lack of heavy oversight.  The firm ‘s account balance is affected by the firm you traded with. 16 September 2013 9 Exchange taraded vs otc markets
  10. 10. THANK YOU Source: www.informtrades.com