Understanding the Negotiated Market
A negotiated market refers to a marketplace where bargaining, or negotiation, is a fundamental part of trading. Unlike an auction market, in a negotiated market, buyers and sellers discuss the price and deal terms directly. This practice is quite familiar to people as it replicates the real-world buying and selling.
Key Features of a Negotiated Market
The primary characteristic of a negotiated market is that prices are not established through an open and competitive bidding process. Instead, the buyer and seller freely negotiate until they reach a mutually agreeable price. In addition, the other terms of the transaction, such as delivery date and payment method, may also be part of the negotiation.
Negotiated Market in Trading
In the context of stock or securities trading, a negotiated market mainly involves Over-The-Counter (OTC) trading. Here, securities don't trade on a centralized exchange such as the New York Stock Exchange. Instead, transactions happen directly between two parties through broker-dealers. This type of trading permits more flexibility and can involve a variety of securities, including stocks, bonds, derivatives, and commodities.”
Brief Comparison between Negotiated Market and Auction Market
In an auction market, prices are determined by matching the highest bid with the lowest offer. Buyers and sellers submit their orders without knowing who they are dealing with. In contrast, in a negotiated market, deals are direct, and price determination happens through negotiation between two identified parties.
Closing Thoughts on Negotiated Market
The negotiated market model delivers a unique value proposition to traders. Primarily, it offers greater flexibility and allows for a more tailored trading experience. Although negotiated markets may require a larger time investment for deal completion, they can be highly beneficial where the standard auction process is not suitable or desired.
