Trading OTC: What it is, how OTC derivatives work, and why more and more investors are choosing it

Definition: What is OTC Really?

The OTC (Over The Counter) term describes a set of financial operations that occur outside traditional centralized stock markets. Unlike exchange trading, OTC trading is executed directly between the involved parties, eliminating intermediaries and their associated fees.

To better understand this concept, let’s imagine two scenarios in the currency market. In a centralized exchange, the platform acts as an organizer: connecting sellers with buyers and facilitating the transaction in exchange for commissions. Conversely, in an OTC broker, the institution buys with its own capital and sells directly to the investor. The broker thus becomes a part of the transaction, not just a mere intermediary.

This fundamental difference has democratized access to global markets, allowing individual investors to participate with smaller amounts and lower commission loads.

Main Instruments in the OTC Market

CFDs: The Most Popular OTC Derivatives

Contracts for Difference (CFDs) represent today the most used OTC instrument among major brokers. The operation is simple: the investor and the broker agree to exchange the price difference of an asset between its opening and closing.

If the price rises, the broker pays the difference to the investor. If it falls, the investor pays the broker. Although the actual asset is not owned, its profitability is replicated without high commissions. This makes small operations, which would be uneconomical on a traditional stock exchange, generate real gains in the OTC market.

Options

Options grant the right (but not the obligation) to acquire an asset at a predetermined price at a future date. If at expiration the price is unfavorable, the investor loses the deposited margin. If favorable, they can buy below the market price, generating profits.

This instrument is popular because it allows access to prices that would normally be unavailable in traditional markets, albeit with a higher risk level.

Forex Spot

Direct currency exchange between two parties constitutes the Forex Spot. When you exchange money at a currency exchange office, you are performing such an operation. OTC brokers offer this service efficiently, buying and selling currencies directly instead of charging commissions for intermediation.

Swaps

Swaps are agreements between companies or large investment funds where they exchange cash flows to manage risks. A common example is the exchange between fixed and variable interest rates in credit operations, allowing both parties to optimize margins or reduce exposure.

Cryptocurrencies

Cryptocurrencies like Bitcoin and Ethereum, being decentralized assets by nature, are naturally traded in OTC environments. Investors can buy and sell directly without traditional financial intermediaries, although many also do so through specialized platforms.

Private stock sales

Private stock transactions, although less publicly visible than stock market operations, fall within OTC trading. These agreements facilitate more direct and competitive exchanges, avoiding stock commissions and allowing additional parallel terms.

Advantages of OTC for Individual Investors

Significantly lower commissions

The absence of public intermediaries dramatically reduces costs. While an exchange charges commissions for mediating between buyers and sellers, an OTC broker only profits from the spread. This difference allows individual investors to make profitable trades with much less capital.

Greater operational agility

Without the restrictions of stock market hours or minimum volumes, OTC trading allows continuous opening and closing of positions. Traders can accumulate small profits frequently, which together generate substantial gains. With lower risk per operation, achieving profitability becomes more accessible.

Margin and leverage operations

OTC brokers allow trading with margin, multiplying gains without investing additional capital. This opens opportunities for larger positions and strategies like shorting, multiplying the potential return but also the risk.

Democratization of access to global markets

Decades ago, investing in stocks, commodities, or currencies required going through banks and intermediaries that imposed high commissions and delegated decisions. Today, anyone can invest from small amounts (approximately 10 euros) in assets as diverse as well-known company stocks, oil, Bitcoin, or foreign currencies.

Comparison: OTC vs. Traditional Trading

Stock markets remain ideal for large corporate purchases, but OTC is better suited for individual investors seeking flexibility, lower costs, and frequent operations without restrictions.

Security in OTC Trading: What You Need to Know

OTC is regulated

A common myth suggests that OTC means deregulated. The reality is different. OTC trading complies with the same regulations as traditional stock markets. Investors’ capital enjoys equivalent protections in regulated jurisdictions.

How to invest safely in OTC

Choose verified and regulated brokers. Reliable platforms hold licenses from reputable authorities, have robust security systems, and quality customer service.

Protect your personal account. A complex and unique password, combined with two-factor authentication (2FA), is essential. The investor is co-responsible for the security of their access.

Use position protection tools. Automated operations like stop-loss and take-profit minimize losses if the market moves in the opposite direction.

Diversify your portfolio. Distributing investments across different assets and strategies maximizes gains and reduces concentrated risks.

The Future of OTC: Why It Grows

OTC trading has transformed investing from an activity exclusive to institutions into an accessible right for everyone. With low commissions, full control over operations, generous margins, and the ability to operate from any amount, millions of individual investors in Latin America and other regions have adopted this model.

Day trading, swing trading, and scalping strategies especially benefit from these conditions, allowing traders to accumulate sustained gains through quick and frequent decisions.

The conclusion is clear: OTC trading offers flexibility, efficiency, and democratization that the traditional system cannot match. For those seeking control over their capital and financial operations, OTC trading represents the natural evolution of access to global markets.