Over the Counter (OTC) refers to the trading of financial instruments—such as stocks, bonds, derivatives, and currencies—directly between two parties without going through a formal centralised exchange. OTC markets operate through dealer networks, with prices negotiated bilaterally rather than determined by exchange-based order matching. In India, government securities (G-Secs), corporate bonds, currency swaps, and many interest rate derivatives are predominantly traded OTC. While OTC markets offer flexibility and customisation, they carry higher counterparty risk compared to exchange-traded instruments due to the absence of a central clearing counterparty.
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