Mastering the Commodities Markets

MARKET FUNDAMENTALS: EXCHANGE TRADED V. OTC DERIVATIVES MARKETS

When reviewing derivatives there are two fundamental groups of instruments: exchange traded products with their strict contract specifications, yet superb liquidity; and the over the counter (OTC) instruments that can be specifically tailored to the client’s own requirements. OTC instruments are often known as ‘off-exchange’ instruments. The majority of commodity derivatives trading developed on physical exchanges such as the Chicago Mercantile Exchange (CME) and the London Metal Exchange (LME), rather than OTC. At the time of writing there is increasing regulatory focus on OTC market products in order to try and direct many of the ‘standardised’ derivatives onto electronic execution ...