Over-the-counter (OTC) Forex Brokers
The foreign exchange market is one of the most popular OTC markets. An over-the-counter (OTC) market is a decentralized market in which market participants trade stocks, commodities, currencies, or other instruments directly between two parties and without a central exchange or broker.
All forex trading activities are conducted off exchanges via a dealer network. This means that forex trading is decentralised and can take place 24 hours a day, rather than being tied to an exchange’s open and close times.
What is an OTC forex broker?
An OTC forex broker provides trading of assets that are not available on a centralised exchange. Technically this means that every retail FX broker can be considered an over-the-counter broker, due to the nature of online retail forex trading.
Market participants, therefore, trade assets directly between themselves (without the need to go through a central exchange). OTC transactions are conducted electronically, which is more convenient (and usually cheaper) for traders and investors alike.
Online retail FX trading is the most popular OTC market, where trading occurs between a network of banks and brokers, instead of on an exchange. An OTC forex broker is the intermediary, issuer and custodian of the products (CFDs) offered to trade on its trading platform.
The OTC market is fully managed by the counterparties involved in it. This means that you can get different price quotes depending on the OTC forex broker that you use. There are non-dealing desk brokers and dealing desk brokers. Generally speaking, you can get superior pricing, quicker execution speeds and greater transparency when using an ECN forex broker.
When you trade OTC with a trading provider, you’ll usually see two prices listed: a single buy price, and a single sell price. This differs from on-exchange trading, where you will see multiple buy and sell prices from various different parties.
How do OTC markets work?
In an OTC market, there is a counterpart, a natural person or legal entity that sets its own price ranges. This is what’s called a market maker. The potential buyer or seller will contact this counterparty, usually through an intermediary or broker, and if they’re interested, they will buy at the sale price (bid) or sell at the purchase price (ask). Prices set by market makers are negotiable, unlike on an organized market.
OTC forex broker pros & cons
- Trade forex around the clock
- Get trades executed instantly
- Trade from your desktop and mobile devices
- Access to lots of trading tools and educational content
- Maintain control over all of your trading activity
- Low cost trading with minimal deposits required
- Flexibility in the contract conditions
- Lack of professional advice
- Inexperienced traders can lose out
- Additional dangerous due to leveraged positions
- Unsupervised and lack of regulation
- The price does not have to be public
- Lower liquidity levels
Who are the best dealing desk forex brokers?
There are hundreds of OTC forex brokers that you can trade currencies online with. The majority of them will offer a great selection of major, minor and exotic currency pairs. Below you can see a selection of our best OTC forex brokers.
ASIC, BaFin, CFTC, DFSA, FCA, FINMA, FMA, FSA, FSCA, JFSA, MAFF, MAS, METI, NFA
Conclusion: should I use an OTC forex broker?
If you are looking to trade forex online by yourself, then you will need an OTC forex broker. Over the counter markets have registered exponential growth over the past two decades to the point that, in many cases, they exceed organized markets in volume of transactions. At first, only large funds and financial institutions participated in them, but now, thanks to the development of new technologies, anyone can access these markets through forex brokers.
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