What OTC is
Over-the-counter instruments: when they are available and how they differ.
Understand the nature of OTC quotes and stop carrying exchange-market habits onto them.
OTC often looks more rhythmic — but it is a different mode, not an easier one.
OTC stands for over-the-counter. These are instruments whose price is formed by the broker's model on the basis of market data, rather than by trades on an exchange.
The main practical reason OTC exists is time. The currency market runs Monday to Friday, while OTC is available at weekends too, when there are simply no exchange quotes.
- An exchange instrument
- — The price is formed by real trades between participants
- OTC
- — The price is formed by the broker's model
- News
- — Affects the exchange instrument strongly, OTC weakly
- Availability
- — Exchange — in working hours, OTC — at weekends as well
Technical analysis works on OTC: levels, structure and the reaction of price remain the main tools. Macroeconomic analysis, though, loses its point — the external news backdrop barely touches modelled quotes.
OTC often looks smoother and more rhythmic than the exchange market. That smoothness creates an illusion of predictability and tempts people to raise the trade size. A full treatment of OTC is in LEVEL 10.
The usual mistake
Treating OTC as an “easier mode” because the chart is smoother. It is a different mode, and its statistics have to be kept separately.
A note from Leon Mercer Academy
If you trade both exchange instruments and OTC, keep two separate columns in the journal. Mixed statistics hide where you are actually losing.
A practical example
Compare EUR/USD and EUR/USD OTC on a weekend day. The first stands still — the market is closed. The second moves on its own model.
Note the character of the second: it often looks smoother, with repeating swings.
Lesson 9 of 15 in “BINODEX START”