Counter Party Risk is more in OTC markets. In an exchange traded market the exchange or the regulatory becomes the counter part to every transaction and delivery of securities/funds is guaranteed whereas in OTC market this is not the case and counter party risk exists.
Best Price Discovery in Exchange traded markets as there are number of traders who trade on a single and centralized system. So there will be less chances of manipulation by operators whereas in OTC markets it depends on the number of dealers (market makers) who trade in a particular security.
Less Liquidity in OTC market as there are less number of clients and participants. In Exchange traded market there will be buyers and sellers in almost all counters.
Absence of proper regulatory body in OTC markets. All firms that offer exchange traded products must be members and register with the exchange, there is greater regulatory oversight which can make exchange traded markets a much safer place for individuals to trade
Sathish Emmadi
Sathish Emmadi is a co-founder & editor at Lastbull.com. He is presently working in IT for one of the world’s top mutual fund companies. Handled multiple projects in BFSI (Banking,Financial Services and Insurance) domain. An Engineering Graduate from NITW.
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