What do institutional investors typically trade in the fourth market?

Institutional investors primarily engage in the fourth market to trade directly with one another, bypassing traditional exchanges. This environment is typically characterized by transactions involving large blocks of securities, which allows for greater efficiency and lower costs in trading.

In this context, debt securities such as bonds are frequently traded. This is because institutional investors often seek to manage large portfolios with significant allocations in fixed-income instruments. The fourth market provides an avenue for these institutions to negotiate and transact in large quantities of debt securities in a way that may not be as feasible or efficient on public exchanges.

While stocks and equity mutual funds are commonly traded in other markets, the focus in the fourth market is particularly on direct negotiations between institutional players for the purpose of optimizing liquidity and reducing transaction costs. Options may be important in the broader financial landscape, but they are not the primary focus of trade in the fourth market, which emphasizes the significant volume and size of transactions typical of debt securities among institutions.