Third markets are markets in which listed securities are traded over the counter by investors that are not listed with a stock exchange. Also known as an OTC or Over The Counter Market, the third market has traditionally been utilized as a means of trading large blocks of stocks between institutions. However, this is changing as more individual investors begin to explore third market transactions.

In the past, the third market was an ideal arena for the buying and selling of investments as a means of funding corporate pension funds or to secure large blocks of stocks for use by investment companies or securities firms. Because the securities trading took place outside of such markets as the American Stock Exchange or the New York Stock Exchange, the movement would be more or less transparent to smaller investors. At the same time, the transactions conducted through a third market approach could be accomplished quickly and easily, allowing the buyer and the seller to maximize the profit gained from the transactions.

While once the province of institutional investors, the third market is experiencing an increase in the active presence of individual investors. This phenomenon can be attributed to the advent of the Internet. Beginning in the 1990’s and continuing today, online trading has opened up a whole new world for investors that are not trading on behalf of a larger institution. These investors find that use of third market trading is quick, offers excellent variety, and allows more anonymity than trading on an exchange.

Another advantage to third market trading has to do with the costs of working through a broker. Because transactions in a third market situation can be made directly by the investor, there are no brokerage fees to be paid. While many online trading sites do charge a transaction fee, it is normally much less than standard broker fees. The end result is the investor will pay less for executing an order, a fact that can be very appealing.

At the same time, the third market is not a good place for novices. Persons who are new to the world of investing would do well to focus on trading through a brokerage. After the new investor has become more proficient in making projections and evaluating a given investment, the third market becomes a more viable option.