Over-the-counter (OTC) trading means two parties agree a trade directly with each other, usually through a dealer or broker, instead of sending orders to a public exchange order book. Anyone can see the bids and offers on an exchange. An OTC price is negotiated privately and quoted to one client at a time. This model covers most of the world's currency trading, much of the derivatives market, US stocks that are not listed on an exchange, and large cryptocurrency trades handled by OTC desks.
OTC versus exchange trading
On an exchange, every participant's orders meet in one central order book under the venue's rules. OTC markets are decentralised. Trades pass through a network of broker-dealers rather than one central venue, according to Cornell Law School's Legal Information Institute.
The practical differences:
| Exchange | OTC | |
|---|---|---|
| Price discovery | Public order book, visible to all | Quote negotiated between the parties |
| Counterparty | Usually a central clearing arrangement | The dealer or the other client directly |
| Transparency | Pre-trade quotes and trades published | Depends on the market and jurisdiction |
| Trade size | Large orders can move the visible price | A block can be priced once, at one agreed rate |
Where OTC trading happens
Currencies and interest rate derivatives
Foreign exchange is the largest OTC market. The Bank for International Settlements (BIS) Triennial Survey reported global FX trading of $9.6 trillion per day in April 2025, up from $7.5 trillion three years earlier (BIS press release, 30 September 2025). The same survey put OTC interest rate derivatives trading at $7.9 trillion per day in April 2025.
US stocks not listed on an exchange
In the US, OTC securities are financial instruments that are not listed on a major exchange (Cornell LII). They trade through broker-dealers regulated by FINRA. FINRA Rule 6420 defines an "OTC Equity Security" as any equity security that is not an "NMS stock" under SEC Regulation NMS. OTC Markets Group runs the OTCQX, OTCQB, OTCID and Pink Limited markets.
Disclosure is the main difference from listed stocks. OTC securities are "subject to less stringent regulatory and listing standards", so some issuers publish less financial information (Cornell LII). On 16 September 2020 the SEC amended Rule 15c2-11. Issuer information now has to be "more current and publicly available for a broker-dealer to publish quotations for an OTC issuer's security" (statement by then-SEC Chairman Jay Clayton).
Cryptocurrency
In crypto, "OTC" usually means a desk that handles large trades away from a public order book. A buyer of a large amount of bitcoin who sends a market order to an order book uses up the resting offers one level at a time, so the average price gets worse as the order fills. An OTC desk gives one quote for the full size instead, and the trade settles once at that rate.
How a crypto OTC desk fills an order
Most desks work on a request-for-quote (RFQ) basis:
- Onboarding. The client goes through identity and anti-money-laundering checks before trading.
- Request. The client asks for a price on a stated asset and size, such as buying a fixed quantity of an asset against a stablecoin or fiat currency.
- Quote. The desk returns a firm price that is valid only for a short time.
- Execution. If the client accepts, the trade is agreed at that single price.
- Settlement. The client and the desk exchange the assets and funds according to the agreed terms. The order of delivery matters (see the risks below).
Desks work in one of two ways:
- Principal. The desk trades against its own inventory and earns the spread between its buy and sell prices.
- Agency. The desk finds the other side, for example another client or a liquidity provider, and executes on the client's behalf without taking the position itself.
EU law draws the same line. Under the Markets in Crypto-Assets Regulation (MiCA, Regulation (EU) 2023/1114), Article 3(1) defines several separate services. "Exchange of crypto-assets for funds" means "the conclusion of purchase or sale contracts concerning crypto-assets with clients for funds by using proprietary capital", which is principal dealing. "Execution of orders on behalf of clients" means "the conclusion of agreements, on behalf of clients, to purchase or sell one or more crypto-assets", which is agency. A separate service, "reception and transmission of orders", covers passing a client's order to a third party for execution. In a Q&A dated 6 June 2025 (ESMA_QA_2293), the European Commission said that dealing on own account with no client relationship does not need a crypto-asset service provider (CASP) licence. Firms that provide crypto-asset exchange services to clients must obtain one.
What risk sits in your OTC trade?
Answer three questions about a crypto OTC desk trade to see which settlement risk applies and what the article says removes it.
Is the crypto OTC provider serving you in the EU?
- Yes, in the EU, where MiCA applies → next question
- No. Whether it needs a licence depends on that jurisdiction and the service it provides → next question
How does the desk fill your order? Under MiCA, firms that provide crypto-asset exchange services to clients must obtain a crypto-asset service provider (CASP) licence. Dealing on own account with no client relationship does not need one.
- From its own inventory, earning the spread (principal; MiCA calls this "exchange of crypto-assets for funds") → next question
- By finding the other side and executing for you (agency; MiCA calls this "execution of orders on behalf of clients") → next question
At settlement, does one side deliver before the other side's payment is final?
- Yes, one side delivers first → Settlement risk is open
- No, it is payment-versus-payment: neither payment becomes final unless the other does → Settlement risk is removed
- The agreed terms do not say → Check the order of delivery first
The side that delivers first carries the risk that the other party fails to deliver what it owes. The BIS estimated that $2.2 trillion of deliverable FX turnover was exposed to this risk on any given day in April 2022, and the same risk applies in crypto OTC trades. Payment-versus-payment arrangements are the standard way to remove it.
Under payment-versus-payment, neither side's payment becomes final unless the other's does, so neither side is left having delivered alone. The trade still relies on the desk rather than a central clearing arrangement, and a single quote is harder to check than a public order book. Comparing quotes from more than one dealer is the only direct check.
The order of delivery decides who carries settlement risk. If one side delivers first, that side is exposed until the other delivers. Payment-versus-payment arrangements are the standard way to remove the risk. A single quote is also harder to check than a public order book, and comparing quotes from more than one dealer is the only direct check.
This maps the structures and risks the article describes. It does not assess any specific desk's terms, minimum sizes, fees or licence status, and it is not investment advice.
Why traders use OTC
- Price impact. A large order is priced once instead of moving through visible order-book levels.
- Discretion. The trade is not displayed as a resting order before execution, so other market participants cannot react to it in advance.
- Size and convenience. One negotiated trade can replace many smaller orders spread across time or venues.
The risks
- Counterparty and settlement risk. OTC trades usually rely on the dealer or the other party rather than a central clearing arrangement. The BIS defines FX settlement risk as "the risk that one party to a trade of currencies fails to deliver the currency owed". It estimated that $2.2 trillion of deliverable FX turnover was exposed to this risk on any given day in April 2022 (BIS Quarterly Review, December 2022). The same risk applies when one side of a crypto OTC trade delivers first. Payment-versus-payment arrangements, where neither side's payment becomes final unless the other's does, are the standard way to remove it.
- Price transparency. A single quote is harder to check than a public order book. Comparing quotes from more than one dealer is the only direct check.
- Disclosure. For OTC-quoted stocks, issuers may publish less information than listed companies, as noted above.
- Regulatory status. Whether a crypto OTC provider needs a licence depends on the jurisdiction and the service it provides. In the EU, MiCA treats principal dealing with clients and order execution for clients as separate services.
Limitations
This article explains how OTC markets are structured. It does not cover any specific desk's terms, minimum trade sizes or fees, and none of it is investment advice.
