What Is the Primary Difference between a Central Counterparty (CCP) and an Over-the-Counter (OTC) Market? ▴ Learn

What Is the Primary Difference between a Central Counterparty (CCP) and an Over-the-Counter (OTC) Market?

A Central Counterparty (CCP) is an entity, usually a clearing house, that interposes itself between the buyer and seller, guaranteeing the trade and centralizing risk. Trades are typically standardized and exchange-traded.

The Over-the-Counter (OTC) market is a decentralized market where trades are negotiated directly between two parties (bilateral) without a CCP guarantee, leading to customized contracts and higher counterparty risk.

What Is the Role of the Counterparty in an Over-The-Counter (OTC) Derivatives Trade?

Explain the Difference between Bilateral and Centrally Cleared Derivatives

What Is the Primary Advantage of a Centrally Cleared DVP over a Bilateral OTC DVP?

Why Are Non-Standardized Options Typically Traded via RFQ Rather than a CLOB?