How Do Exchange-Traded Futures Differ from Over-the-Counter (OTC) Derivatives?
Exchange-traded futures are standardized contracts traded on a formal exchange, offering high transparency and reduced counterparty risk due to the clearing house. OTC derivatives are customized, private agreements negotiated directly between two parties.
They lack the standardization and centralized clearing of futures, leading to greater flexibility but higher counterparty risk. Futures are highly regulated, while OTC deals have less regulatory oversight.
Glossar
Counterparty Risk
Exposure ⎊ Counterparty risk represents the potential loss incurred when a trading partner defaults on their contractual obligations.
Standardized Contracts
Instrument ⎊ Derivative contracts, like futures or options, that have undergone a formal process of standardization regarding contract size, expiration cycles, and settlement procedures, typically traded on regulated exchanges.
Over-The-Counter (OTC)
Structure ⎊ This describes trading conducted directly between two parties without going through a centralized exchange order book, typical for large-volume crypto derivatives.