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What is an Outside Market?

Article Details
  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 15 July 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Sometimes referred to as an over the counter market, an outside market is a format of buying and selling securities without going through a central exchange. This approach functions with the use of a dealer, who receives the order, then executes the order on behalf of the investor. The method used to manage the transaction may be via telephone, or using online resources.

An outside market can include just about any type of securities, including stocks and bonds. It is also possible to trade foreign currency on this type of market, as well as various other types of cash items. The versatility of an outside market makes it an attractive approach to buying and selling stocks and other securities among many investors, especially those who want to execute an order to sell now, rather than having to wait for a buyer.

The dealer functions as the intermediary between the investor and the exchange where the particular type of security is traded. In order to utilize the services of the dealer, all that is required is to advise the dealer of what assets the investor wishes to buy or sell, provide guidelines as far as price per share, then allow the dealer to take care of the actual transaction. The dealer makes it possible to buy and sell whenever the investor wishes to do so, even during after market hours.

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For the investor, this means that choosing to conduct trades via an outside market is quick, easy, and convenient. There is no lag time as the investor waits for a broker to place the order, then confirm that it has taken place. With dealers working in this type of trading situation, the transactions can be completed quickly. This can be very important if the investor is relying on a strict timeline to execute a series of purchases and sales in a sequence that will result in earning returns in a short period of time.

As with any type of investing situation, it is important to build a strong working relationship with a dealer before trading on an outside market. While most dealers focus simply on managing the tasks requested by their clients, some go above and beyond this and offer investing advice, especially if they are concerned that the investor is about to make a trade that will ultimately lose money. Since this is the exception, trading on an outside market is something that most investors should only do once they have a strong grasp of the current status of the marketplace. Investors must also learn how to craft an accurate projection of what is likely to happen over the next year. This is absolutely necessary in order to gain the most benefit from trading over the counter.

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