How Does a Margin Requirement Differ between OTC and Listed Futures Contracts? ⎊ Path

How Does a Margin Requirement Differ between OTC and Listed Futures Contracts?

Listed futures contracts have standardized margin requirements set by the exchange and the clearinghouse, which are uniform for all participants and subject to daily mark-to-market adjustments. OTC contracts have negotiated margin requirements set bilaterally between the two counterparties, often based on their credit ratings and the specific terms of the swap or forward.

The listed margin process is transparent and centrally managed, while the OTC process is private and variable.

How Does Bilateral OTC Trading Increase Counterparty Risk Compared to Exchange-Based Models?

What Is ‘PFE’ (Potential Future Exposure) and How Is It Used in Credit Risk Management?

How Does Collateral Management Differ between Bilateral and Cleared Trades?

What Is the Primary Difference between OTC and Exchange-Traded Derivatives?

Can Two Private Parties Agree to MTM Terms in a Forward Contract?

In What Ways Do the Unique Contract Terms of Derivatives Pose a Challenge for CLOB Systems?

What Is the Function of a Clearinghouse in Traditional Listed Options Trading?

What Is the Difference between an OTC Derivative and a Listed Derivative in Terms of Blockchain Settlement?

Glossar

OTC Contracts

Agreement ⎊ OTC contracts are customized financial agreements negotiated directly between two counterparties, bypassing traditional centralized exchanges.

Margin Requirements

Definition ⎊ Margin requirements refer to the minimum amount of capital an investor must deposit and maintain with a broker or exchange to open and sustain a leveraged position in derivatives trading.