FINANCIAL MARKET
EXCHANGE
OVER-THECOUNTER MARKET
✓ It is a marketplace where securities,
commodities, derivatives, and other
financial instruments are traded.
✓ The core function of an exchange is to
ensure fair and orderly trading and the
efficient dissemination of price information
for any securities trading on that exchange.
✓ Exchanges are like big markets where
people buy and sell things like stocks,
bonds, and other financial stuff.
✓ They provide a safe and organized place for
people to trade these investments, kind of
like a stock market where you can buy and
sell shares of companies.
ADVANTAGES
DISADVANTAGES
▪Transparency
▪Liquidity
▪Regulatory
Oversight
▪Standardization
▪Price Discovery
▪Trading Costs
▪Limited Trading
Hours
▪Less Flexibility
▪Market Impact
▪Listing
Requirements
Stock
Exchanges
Commodity
Exchanges
Stock
Exchanges
Commodity
Exchanges
Foreign
Exchange Marke
Commodity
Exchanges
Foreign
Exchange Market
✓ It is a decentralized market in which market
participants trade stocks, commodities,
currencies, or other instruments directly
between two parties and without a central
exchange.
✓ Over-the-counter markets don not have
physical locations; instead, trading is
conducted electronically.
✓ Trading is conducted through a network of
dealers who act as market makers by quoting
prices at which they sell (ask or offer) or buy
(bid) to other dealers to their customers.
ADVANTAGES
DISADVANTAGES
▪Flexibility
▪Lower Costs
▪Customization
▪Privacy
▪Market Access
▪Counterparty Risk
▪Less Transparency
▪Lower Liquidity
▪Regulatory
Oversight
▪Price Volatility
New York
Stock
Exchange
Broker-Deal
Network
Zack Trade
Interactive Brokers
✓Traded on an exchange
✓Traded largely through computer
and/or phone lines
✓Standardized contract
✓Negotiated contract
✓Transparent (Public)
✓Private
✓Clearinghouse acts as third-part
guarantor ensuring contract’s
performance to both trading partners
✓No third-party guarantor
✓Easy termination of prior to contract
expiry
✓Early termination more difficult
✓Performance bond required,
depending on the type of derivative
✓Performance bond not required in
most cases
✓Self-regulated
✓Commission-regulated