What is Over-the-Counter (OTC) Forex Trading?
Quick Answer: OTC forex trading occurs on decentralized dealer networks where banks and brokers quote prices directly, enabling 24-hour access but making execution quality dependent on counterparties.
What is Over-the-Counter (OTC) Forex Trading?
Over-the-counter (OTC) forex trading happens directly between dealers, banks, and clients instead of on a centralized exchange. Pricing flows through a web of bilateral relationships, allowing currencies to trade around the clock as regional sessions hand off to one another.
OTC Market Characteristics
- Decentralized network: Quotes come from multiple liquidity providers, so the quality of your execution depends on the broker’s connections.
- Flexible instruments: Spot, forwards, swaps, and tailored hedges are negotiated without an exchange rulebook.
- Counterparty risk: You rely on the creditworthiness and risk controls of the dealing desk on the other side of the trade.
Compare Liquidity Streams
Professional desks monitor several price feeds. If your broker’s OTC quotes regularly lag the interbank market, request deeper market data or consider an ECN broker for tighter pricing.
Navigating OTC Liquidity
- Track the global session calendar so you know when liquidity is thin and spreads will widen.
- Review execution statistics—fill speed, slippage, and rejection rate—before increasing trade size.
- Use independent news and price sources to confirm that sudden spikes are genuine order flow, not stale OTC quotes.
- Understand how your broker calculates rollover because swap rates vary between OTC counterparties.
Related Terms
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