Introducing the OTC market – What you need to know

Precisely what is the Over-the-Counter (OTC) Market？

To begin with, its important for traders to understand that the OTC Market normally refers to any trading that takes place outside of a traditional exchange. A third-party facilitator like a broker facilitates OTC trades between two market players.

Categories of Over-the-Counter (OTC) Markets

The Forex Market

The most prevalent and largest OTC market is the foreign exchange market. OTC transactions, which are not conducted through a controlled exchange, are the most common form of forex trading.

Good news for traders is that Khwezi Trade, the sole regulated forex broker in South Africa, is not only ringing in a new age, but has extensive understanding of the OTC Markets.

Since currency exchanges may take place at any time of day or night, the forex market is unique in that it allows traders to participate in currency exchanges around the clock, five days a week.

Rather, forex traders may buy and sell currencies CFDs around the clock via a network that links millions of players from across the globe who trade currencies for leisure, business, or speculation.

Brokers, banks, dealers, retail traders and hedge funds are only some of the participants in the foreign exchange market.

What does the OTC regulation aim to achieve？

In South Africa, the goal of this new law is to control the over-the-counter (OTC) derivatives markets.

A safer and more regulated market is one of the primary objectives of the new OTC derivatives regulatory framework. G20 regulations on the OTC derivatives market have been met as a result of this.

Due to the high level of risk associated with trading speculative financial instruments, the ODP legislation mandates that forex brokers in South Africa do additional due diligence on their clients. Another key issue to keep in mind is that it sets severe capital adequacy rules on brokers.

End-of-day transaction reports, which are required by law, are now the responsibility of the broker as well.

In order to make sure that all forex trading customers are treated fairly and that the broker is operating in a responsible manner, the FSCA relies on these transparent transaction information reports.

The advantages of OTC trading include:

• When compared to typical exchange trading, the cost of trading in the over-the-counter market is much lower.

• Improved transparency and more favourable trading environment.

• Whereas settlement in typical exchange trading is t+3 days (trade plus 3 working days), settlement in OTC trading is instantaneous and in the form of cash delivery.

• Because OTC transactions are more flexible, traders may tailor them to meet their specific requirements and achieve their trading goals.

Why should you choose Khwezi Financial Services？

The FSCA has established a regulatory and legal framework for the supervision of organizations that desire to engage in the Over-the-Counter Derivative Providers (ODP) market, either as an issuer or product provider.

On November 9th, 2021, the FSCA approved Khwezi Financial Services as an Over-the-Counter Derivatives Provider in accordance with the Financial Markets Act Regulations.

Khwezi Financial Services is authorized and regulated to provide trading in currencies, indices, and commodities.

Khwezi Financial Services is South Africas first ODP-licensed forex trading platform, making it distinctive. Even though there are several uncontrolled foreign exchange trading platforms in South Africa, the ODP legislation is expected to help bring order to the industry.

“We are very pleased to be identified by the FSCA as one of the leading and competent forex trading platforms in South Africa. This shows that we are not a fly-by-night organisation. We are here to stay and will continue to deliver a consistent and dedicated service to our clients,” said Khwezi Trades COO, Monty Barnard.

Client funds are secured by segregated third-party administrative bank accounts at Khwezi Trade, which provide Rand-based currency CFD accounts.

By using a South African broker, you can be certain that your trading funds will stay inside the country and be subject to South African Reserve Bank regulations.