EXCHANGE TRADED

VS OTC MARKETS
Prepared by: Walid Saafan

Exchange traded market

2

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.
Exchange taraded vs otc markets

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Exchange taraded vs otc markets

4/11/15

Exchange traded market advantages

4

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
Exchange taraded vs otc markets 4/11/15
trade.

Exchange traded market

disadv.

Higher cost due to the regulatory

constraints.
Increased transaction cost due to the
exchange fees and commissions.

Exchange taraded vs otc markets

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OTC market
6

No centralized place
where trades are made.
Market is made up of all
participants in the
market trading among
themselves.
Example FOREX.

Exchange taraded vs otc markets

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OTC market
7

Exchange taraded vs otc markets

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OTC advantage
8

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.

Exchange taraded vs otc markets

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OTC disadvantage.
9

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.

Exchange taraded vs otc markets

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THANK YOU
Source: www.informtrades.com