What is OTC Trading?

Over-the-Counter (OTC) derivatives are privately negotiated financial instruments that allow counterparties to customise trades based on their specific hedging needs. Unlike Exchange-Traded Derivatives (ETD), OTC trades are conducted bilaterally, offering greater flexibility in structuring contracts. 

Marex provides OTC solutions across multiple markets, including commodities, foreign exchange, and interest rates. These instruments are mostly cash settled, meaning the counterparty pays or receives an amount of cash upon the expiry of the transaction.

Key Characteristics of OTC Trading

Bilateral Trading Clients trade directly with Marex Financial, a UK-based, FCA-regulated, investment-grade (BBB rated) financial institution.
No Initial Margin Requirements Unlike exchange-traded products, trading on an OTC basis means the initial margin is typically fully funded, improving working capital efficiency.
Customisable Solutions OTC contracts can be tailored to match specific risk profiles, including size, maturity, and payoff structures.
Flexible Margining Variation Margin (VM) can be funded up to a certain threshold, subject to credit approval.
Product Variety Clients can access a broad range of instruments, including futures and options look-alikes, hedging of bespoke / un-listed indices, hybrids combining asset and FX hedges, and multi-asset strategies.

Why Choose Marex for OTC Trading?

Working Capital Optimisation – Marex Hedging Solutions can offer tailored credit lines to clients following a comprehensive credit assessment. This can help to minimise the burden and frequency of paying margin calls, optimising your trading experience. We assess each client’s creditworthiness individually to determine appropriate credit facilities which align with our risk appetite. A margin call should only arise when the negative mark-to-market of a client’s portfolio of trades exceeds the Variation Margin threshold granted after their credit assessment. 

How it Works in Practice

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Flexibility and Liquidity – Ability to place non-standard trades with customisable volumes, structures, and maturities to create hedges which better match underlying market exposures. As a market maker, we can also provide hedges against indices where there is little or no tradable ETDs equivalent contracts, helping to provide hedging capabilities and liquidity in various niche markets.

Integrated Risk Management – OTC products can complement exchange-traded positions, providing a holistic approach to risk management. Our in-house platform, Agile, allows clients to click-and-trade various products, track market prices and monitor the status of their OTC positions daily throughout the lifecycle of the trades.

OTC vs. Exchange-Traded Derivatives (ETD)

Feature OTC Trading ETD
Counterparty Marex Financial (bilateral) Exchange
Margin Requirements No Initial Margin and possibility of Variation Margin funding Initial & Variation Margin required daily
Customisation Both standard and fully tailored contracts are possible, including Pricing periods eg Asian-style month-averaging, non-standard pricing dates, and with embedded currency conversion (Compos) Standardised contracts only
Product Flexibility Futures and options look-alikes, bespoke / unlisted indices, hybrids, multi-asset solutions Exchange listed futures and options only
Settlement, Maturity & Expiry Dates Flexibility to match settlement date required to exactly align cash flows with physical business. Standarised settlement terms as dictated by exchange listed contracts
Lot Sizes / Volume Volume of trades can be fully customised with broken lot sizes possible too. Fixed sizes only depending on contract

Enhancing Client Value with OTC Trading

By choosing OTC hedging solutions with Marex, clients can benefit from capital efficiency, reduced margin requirements, and greater flexibility in structuring non-standard trades. This makes OTC trading an effective tool for hedging, optimising risk management, and improving liquidity utilisation, which can be used in conjunction with ETD setups or without.

Looking to Optimise Your Working Capital?

Find out how Marex’s liquidity management tools, including Liquidity Swaps and synthetic Repo transactions, can help optimise your capital efficiency and improve your financial flexibility.


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