Skip to main content

Does the Lack of Standardization in OTC Products Always Mean Low Liquidity?

Not always. While standardization generally boosts liquidity, large, actively traded OTC markets, such as certain currency or interest rate swaps, can be highly liquid.

However, the liquidity is generally bilateral, meaning it depends on finding a willing counterparty. Highly customized or illiquid underlying assets will have lower OTC liquidity.

What Is the Primary Difference in Liquidity between Forward and Futures Contracts?
What Are the Risks of Using Bilateral (Non-Cleared) Derivatives Compared to Centrally Cleared Ones?
What Is the Trade-off between Standardization and Contract Customization in Derivatives?
How Does the Standardization of Futures Contracts Affect Liquidity?