A financial instrument that is not exchange traded. In other words, trading takes places directly between buyer and seller.

OTC instruments are characterised by a high degree of customisation; that is, most - if not all - details can be specified by the purchaser, but at a price.

(Over The Counter) A stock exchange which is usually the dumping ground for companies that are about to die. Most companies land here because they are delisted from the NASDAQ exchange for reasons such as the stock price falling below $1 for an excessively long period of time.

The OTC is generally considered dishonorable, and is often targeted by people who run pump and dump scams.

The Over the Counter (OTC) market for derivatives is huge and vibrant. Simply put, an OTC derivative is a contract between two counterparties, with any particular terms they care to employ. As a contrast, exchange traded options have standardized maturities and standardized strike levels.

The use of the OTC market allows a hedger to enter a specially tailored contract to hedge expected cash outlays. For example, an airline may elect to purchase call options on the price of aviation fuel. If the price of fuel goes up, the airline can exercise the call and pocket the difference. Using this hedging strategy, the airline is insensitive to fuel price increases over a certain level. Typically, such an option would be an Asian option to smooth out variability.

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