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What Is the Main Characteristic of an Over-The-Counter (OTC) Derivatives Market?

Direct, bilateral negotiation between two parties, allowing for customized terms but introducing counterparty risk.
Greeks.Live23.11.25

What Is the Main Characteristic of an Over-The-Counter (OTC) Derivatives Market?

The main characteristic of the OTC market is that transactions are negotiated directly between two parties (counterparties) without the use of a formal exchange. This allows for highly customized contract terms, but it also introduces counterparty risk, as there is no central clearing house guaranteeing the trade.

It is a decentralized, bilateral trading environment.

What Is the Primary Difference between a Central Counterparty (CCP) and an Over-the-Counter (OTC) Market?
What Mechanisms Are Used to Trade Forward Contracts If They Are Not on an Exchange?
How Does the Legal Documentation Differ between Standardized and Customized Derivatives?
How Does Multilateral Netting Differ from Bilateral Netting?

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