Exchange traded markets involve stocks trading on a centralized exchange, with the exchange acting as the counterparty to all trades. This removes counterparty risk but involves higher fees. OTC markets have no central exchange, so participants trade directly with each other through different firms. OTC markets have lower costs but involve counterparty risk since trades depend on the firm used. Overall, the document compares the key differences between exchange traded and OTC markets.

1. EXCHANGE TRADED VS
OTC MARKETS
Prepared by: Walid Saafan

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.
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Exchange taraded vs otc markets

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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.
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Exchange taraded vs otc markets

5. Exchange traded market disadv.
 Higher cost due to the regulatory constraints.
 Increased transaction cost due to the exchange fees
and commissions.
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Exchange taraded vs otc markets

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.
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Exchange taraded vs otc markets

7. OTC market
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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.
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Exchange taraded vs otc markets

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.
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Exchange taraded vs otc markets

10. THANK YOU
Source: www.informtrades.com