OTC (Over-the-Counter) equity derivatives actually service a broad section of investors. This encompasses everyone from insurance companies, hedge funds, to pension funds, to banks, to sovereign wealth funds, to corporations, to the public sector, to asset managers, and more. This blog post looks at the market for OTC equity derivatives as one which is global. This is because there has been simply incredible growth in the OTCED marketplace over the last ten years or so. This is growth that shows absolutely no signs of slowing down either.
So, what is it about OTC equity derivatives that are really taking off? There are actually several factors that have brought this progression about. The flexibility in relation to product design and the private nature of this market has really helped it to thrive. This has allowed equity derivatives to be used as portfolio diversification options, as risk-management tools, as an attempt to outperform benchmark indices, and to hedge the issuance of equity-related financial products. As you can see; the potential for equity derivatives of an over-the-counter nature is vast. Because of this, they appeal to various investors, which backs up the earlier point about them servicing everyone from asset managers to insurance companies.
One must also consider the fact that equity derivatives on the exchanges are very limited. There are indeed a substantial number of products that are unavailable on the exchanges, to begin with. And even those that are available tend to be very restricted in terms of strike ranges, size, and tenor. As a result, this becomes another factor as to why OTC equity derivatives are becoming more plentiful. They allow the transactions to be tailored in order to meet the specific needs of the end-users. Thus, they essentially take away all of the limitations that are associated with equities on the exchanges. You can use copy trading if you want to get involved as a newbie.
As mentioned in the introduction, the growth of OTCs is something that is well and truly taking place on a global scale. Products are actively trading all over the world. This encompasses everywhere from Asia-Pacific to America to Europe. Nonetheless, statistics show that it is Europe that is leading the way. They boast over half of the global market for over-the-counter equity derivatives. However, the United States also holds a big proportion with over a quarter of the market, whilst Japan comes in third with approximately seven percent. Many reports have predicted that these figures are set to grow steadily on an annual basis and thus one can safely say that there is no sign of the market for OTC equity derivatives slowing down.
When you take everything into account and all of the benefits associated with this type of equity derivative, it is not hard to see why it is flourishing at the moment. This private exchange offers customization and flexibility and therefore the potential is huge; hence why so many different types of investors, from asset managers to insurance companies, all over the world are capitalizing on this booming marketplace.