Next, let's distinguish exchange traded from OTC Markets.

Exchange traded markets represent order and standardization in financial trading operating within the confines of centralized exchanges.

These institutions serve as intermediaries setting the stage for a regulated and transparent trading environment, where instruments such as stocks, ETFs, futures, and options are traded in accordance with uniform contract specifications.

Regulation is stringent in these markets, ensuring investor protection through publicly available information on prices, volumes, and market depth, thereby fostering a high degree of transparency. Clearing and settlement processes are centralized, effectively minimizing counterparty risk and ensuring trade execution. These markets are widely accessible, inviting participants from both retail and institutional investors, thus facilitating an active and diverse trading landscape where prices are determined by transparent supply and demand dynamics.

OTC markets, in contrast, operates outside the boundaries of centralized exchanges. This sector accommodates financial instruments that are typically not found on regulated marketplaces such as bespoke derivatives or less common stocks and bonds. The trading here happens directly between counterparties, allowing for flexibility and customization, but resulting in lower levels of regulation and transparency. Furthermore, price formation is a negotiated affair affected by many nuanced factors.

One example being the perceived credit worthiness of the counterparty. Why? Well, it's because the absence of a centralized clearing house in some OTC markets means that each party assumes counterparty risk as a result of the transaction.

The OTC market tends to attract more institutional, sophisticated investors, along with substantial entities capable of engaging in and supporting the complex nature of these transactions.