Over-the-counter trading with ecoStart
A unique feature of ecoligo's premium solar bond, ecoStart, is its flexibility compared to our traditional ecoProject investments. This flexibility is made possible by its unique over-the-counter (OTC) trading feature.
With OTC trading, you have the option to sell your ecoStart investment directly to another investor on the open market. This means your funds are less tied up compared to ecoProject investments, providing greater liquidity. Whether you need funds for a significant purchase, like a house deposit, or to cover an unexpected emergency, OTC trading allows you to access your money when you need it most.
What is over-the-counter trading (OTC)?
Over-the-counter (OTC) trading refers to the trading of securities outside of formal exchanges such as the NYSE, NASDAQ, Euronext or the Frankfurt Stock Exchange. In the context of ecoStart, OTC trading allows you to sell your bond directly to another investor without having to wait for the bond to mature. This is done through brokerage services or financial institutions that facilitate such transactions. Unlike traditional exchange trading, over-the-counter trading is done directly between two parties and is often less regulated, which carries both opportunities and risks.
Pros and cons of over-the-counter trading
Pros:
1. Flexibility: Over-the-counter trading offers greater flexibility compared to traditional exchange-traded bonds. You can sell your ecoStart bond at any time, giving you liquidity when you need it.
2. Cost savings: Trading in the over-the-counter area often incurs lower fees compared to exchange trading, as you save on exchange fees.
3. Speed: Trading directly between two parties can be faster and enables quicker transactions.
4. Customisation: Over-the-counter transactions can be tailored to the needs of the investors involved and enable more customised investment conditions.
Disadvantages:
1. Less transparency: OTC markets are less transparent than formal exchanges, which can make it more difficult to determine the fair market value of your bond.
2. Higher risk: with less oversight, there is an increased risk of counterparty default. This means that the other party may not fulfil its side of the transaction.
3. Limited access: Over-the-counter trading may be less accessible to private investors than institutional investors, and not all brokers offer OTC trading.
4. Price volatility: The market price for over-the-counter transactions is not publicly traded, which can lead to price variability and potentially higher costs when market conditions are unfavourable.
How and where to trade OTC
In Germany, there are several platforms and financial institutions through which OTC trading can be conducted. Here is a brief overview:
1. gettex: an electronic trading system of the Munich Stock Exchange. Major market makers include Baader Bank and Hypovereinsbank.
2. LS Exchange: operates under the supervision of the Hamburg Stock Exchange, with Lang & Schwarz TradeCenter KG as market maker.
3. Tradegate Exchange: the second largest trading platform in Germany after Xetra, with over 30 participants from Germany, Austria and the UK.
These platforms offer extended trading hours, typically from 8 am to 10 pm, and thus flexibility outside of traditional exchange trading hours. However, it is important to note that not all banks and brokers offer over-the-counter trading services. Therefore, it is crucial to check with your financial institution or broker to see if they support OTC transactions.
Steps to trade ecoStart bonds over-the-counter
1. Check with your custodian: Ensure that your custodian supports over-the-counter trading.
2. Get market data: Use a trading platform to get current market data on your ecoStart bond. This will help you understand market conditions.
3. Place an order: If you accept the quoted market price, you place an order through your broker. Your broker will execute the transaction and ensure that it is processed .
4. Confirmation: Once the order has been placed, the trade will automatically be executed and you will receive confirmation of the sale within seconds.
Important considerations
While over-the-counter (OTC) trading offers flexibility and potential cost savings, it also comes with higher risks and reduced transparency. It’s important to carefully consider these factors and ensure you have a clear understanding before deciding to trade your ecoStart bond over-the-counter.
If you have any questions or need further information, our dedicated support team is available to guide you through the process. Despite the risks, the off-exchange trading feature of ecoStart provides a valuable layer of flexibility, making it easier to manage your funds and access liquidity when you need it most.