Over the counter(OTC) forex brokers, offer a much less regulated and informal market of exchange, where traders can trade securities that are less well known and perhaps not available on other major exchanges.
As opposed to the major exchanges, OTC trading is organized by dealer groups and doesn’t happen within a single institution. Dealers work like “market makers” and agree to keep a specific number of assets to ensure that they’re available. They are also the ones who quote the bid and ask prices for their customers and other dealers.
There are many options for buying securities these days and many traders are used to making their trades quickly with prices that are transparent. The trading of securities that are well-known usually takes place on a formal exchange. Formal exchanges are big organizations that follow set rules to ensure the market is active and that there is a strong supply and demand.
OTC Forex Brokers List
MAS, JFSA, DIFC
OTC Forex Trading
Over-the-counter trading is commonplace in Forex, as well as other markets. In fact, OTC Forex brokers are the most common way of trading Forex. This model of execution means deals are performed over-the-counter, with the broker acting as “market maker”. The trades are made between the two parties under no supervision of a formal exchange.
Advantages of OTC Forex Trading
There are advantages to trading OTC for investors. Firstly, they are often much less expensive than the formal exchanges and traders can buy larger quantities at earlier stages. A second advantage is that the securities offered are not as widely offered on other platforms, meaning that the deals are less-competitive and thus better priced.
The Risks of OTC trading
There are some risks to OTC trading. There does exist a potential for profit, but there are risks too, like the lack of information made public about the securities that are being traded. Essentially, there is less regulation and less transparency. The trading is decentralized and carried out by the OTC Forex broker. For the trading to be deemed reliable, OTC brokers really should be regulated by authorities given that this is the only way that brokerage can be controlled. Without this, you don’t ever really know whether the broker is just faking its status. Many OTC brokers are new with no track record. They may actually have no assets or revenues. Additionally, OTC brokers can withdraw at any time which can cause liquidity to slow, hampering the buy or sellability of participants.
Given the information about the risks listed above, it is essential that traders do their research and consider consulting professionals before trading Forex OTC. There are reputable brokers out there but someone with inexperience may need pointing in the right direction.