OTC markets, as well as traditional floor markets, continue to play a key role in stock trading. The traditional floor markets incorporate a centralized physical floor where transactions are completed such as the New York Stock Exchange. The floor usually has a specified number of traders. Unlike the traditional floor markets, the Over the Counter markets is decentralized and does not require a physical location for stock transactions. For a long time, the traditional floor markets have dominated stock trading due to their excellent regulation and stricter security. The OTC market lacks proper regulation and has a more counter party risk than the traditional floor markets. However, the OTC markets are increasingly taking more share of the market from the traditional floor markets even with the little regulation and increased counter party risk.
In my view, I believe that the OTC market will even continue to take a larger share of the market from the traditional floor markets. I believe that technology and the volume of traders will continue to play a key role in OTC dominance. When looking at the volume of traders, there are many smaller and newer firms that do not meet the criteria to be traded in the traditional floor markets. A majority of these firms opt for OTC markets. Again, the advancement of technology has made it possible for traders to transact electronically at any place around the world. Many small firms constitute a larger market compared to few large firms. I also believe that trading in OTC market is relatively cheaper, faster and efficient compared to the traditional floor markets and it is because of these factors that OTC will continue to take a large share of the market from the traditional floor markets.
