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If I decide to trade OTC derivatives, I take on counterparty risk. Since the transaction is not overseen by a clearing house/firm, I accept the risk that the counterparty may not honour the obligation.

What is the 'extra' reward that I get for taking the 'extra' risk? Just the fact that the lot size is customizable (i.e less than 100 shares/lot)? Just wondering if there are other rewards because this clearly does not justify the risk

  • Because there is no listed equivalent to the OTC product you are trading? – assylias Apr 30 '15 at 11:57
  • Can you give an example? – Victor123 Apr 30 '15 at 13:44
  • For example you may want an option with a strike that is not listed, or an option on a basket of stocks or some other "exotic" underlying, or a FX Forward without liquid future equivalent, or an equity swap without equivalent listed CFD etc... – assylias Apr 30 '15 at 16:12

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