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The over-the-counter market is an important alternative to exchanges and measured in terms of the total volume of trading, has become much larger than the exchange-traded market. Trades are done over the phone and are usually between two financial institutions or between the financial institutions and one of its clients. . Financial institutions often act as a market makers for the more commonly traded instruments. This means that they are always prepared to quote bid price (a price at which they are prepared to buy) and a n offer price (a price at which they are prepared to sell). An over the counter security is traded through a dealer network rather than through a centralized, formal exchange (such as the NYSE, Nasdaq, or London Stock Exchange). Assets traded OTC are usually traded by private securities dealers who negotiate directly with buyers and sellers.  OTC markets are primarily used to trade bonds, currencies, derivatives and structured products. They can also be ...

A derivatives  exchange is a market where individuals trade standardized contracts that have been defined by the exchange.  Initially its main task was to standardize the quantities and qualities of the grains that were traded. Traditionally derivatives exchanges have used what is known as the open outcry system. This involves traders physically meeting on the floor of the exchange, shouting and using a complicated set of hand signals to indicate the trades they would like to carry out. Exchanges are increasingly replacing the open outcry system by electronic trading, a computer being used to match buyers & sellers.