What is the trading of shares outside a formal stock exchange called?

The trading of shares outside a formal stock exchange is called over-the-counter trading. In an OTC market, transactions are commonly arranged through dealer networks rather than through a centralized exchange order book.

OTC securities can include shares of smaller companies, foreign companies, or companies that do not meet an exchange’s listing requirements. Dealers may quote prices and facilitate trades, but the market structure and available information can differ considerably from those of major exchanges.

OTC trading does not automatically mean a security is fraudulent or unregulated. However, investors may face lower liquidity, wider spreads, less disclosure, and greater difficulty obtaining reliable price information. Regulatory requirements depend on the security, issuer, and jurisdiction.

Some derivatives and bonds also trade over the counter. The term describes the trading venue or arrangement, not a particular asset class or a guarantee about investment quality.