OTC (Over the Counter Trading) is something we at the pork belly take very seriously.
Over the counter trading is trading that is directly between two parties. Exchange trading is trading that is done through trading facilities known as exchanges. When trading via exchanges, contracts may change hands many times before final delivery of goods. Buyers and sellers usually will never meet each other. The exchange may not even connect buyers and sellers until delivery time. An over the counter trade, however, is directly between a buyer and seller. Over the counter trades have high counter party risk, risk that the other party will not be able to deliver their part of the contract. Exchanges, on the other hand, virtually eliminate this risk by requiring traders to post margins and by closing out positions daily. Exchanges also make rules about trading and standardize cont
An over-the-counter contract is a bilateral contract in which two parties agree on how a particular trade or agreement is to be settled in the future. It is usually from an investment bank to its clients directly. But not always. Forwards and swaps are prime examples of such contracts. It is mostly done via the computer or the telephone. For derivatives, these agreements are usually governed by an International Swaps and Derivatives Association agreement.
