Market StructureOTC
Over-the-Counter (OTC)
Trading conducted bilaterally between two counterparties rather than through a centralised exchange and clearing house.
What Over-the-Counter (OTC) means
Over-the-counter means a contract is agreed directly between two parties instead of being matched and cleared on an exchange. Spot forex, forwards, swaps, CFDs and spread bets are all OTC instruments. There is no central limit order book, no single official price and no clearing house standing between buyer and seller, so the terms of the trade and the creditworthiness of the counterparty matter as much as the price.
For retail traders the practical consequences are significant. Your counterparty is the broker, so if it fails your open positions and deposits depend on client money segregation and any compensation scheme rather than on a clearing house. Contract specifications, trading hours, minimum sizes and rollover conventions are set by the broker, not standardised, which is why the same instrument can behave differently at different firms. Exchange-traded currency futures, by contrast, are centrally cleared and fully standardised.
Worked example
A CFD on EUR/USD is a contract with your broker only, so it cannot be transferred to another firm the way an exchange-traded futures position can.
Related terms
- CFD (Contract for Difference)A leveraged OTC contract to exchange the difference in an instrument's price between opening and closing, without owning it.
- Currency FuturesStandardised, exchange-traded contracts to exchange currency at a set price on a fixed future settlement date.
- Interbank MarketThe wholesale tier of the foreign exchange market where large banks and institutions trade directly with one another.
- Segregated AccountsClient money held in bank accounts separate from the broker's own funds, so it is not available to the firm's creditors.
- Investor Compensation SchemeA statutory fund that pays eligible clients a capped amount when a regulated firm fails and cannot return their money.
Frequently asked questions
What does Over-the-Counter (OTC) mean in forex trading?
Trading conducted bilaterally between two counterparties rather than through a centralised exchange and clearing house.
How does Over-the-Counter (OTC) work in practice?
For retail traders the practical consequences are significant. Your counterparty is the broker, so if it fails your open positions and deposits depend on client money segregation and any compensation scheme rather than on a clearing house. Contract specifications, trading hours, minimum sizes and rollover conventions are set by the broker, not standardised, which is why the same instrument can behave differently at different firms. Exchange-traded currency futures, by contrast, are centrally cleared and fully standardised.
What is an example of Over-the-Counter (OTC)?
A CFD on EUR/USD is a contract with your broker only, so it cannot be transferred to another firm the way an exchange-traded futures position can.
Trade with a regulated broker
Understanding the terminology is the cheap part. The expensive part is choosing a counterparty whose execution, financing and withdrawal behaviour match what the marketing implies. Every broker below has been reviewed with a funded live account, and each review states which legal entity and which regulator applies to the account you would actually open.
Check the licence on the regulator's own register before you deposit — our regulators directory explains what each authority enforces, from leverage caps to compensation limits.