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.