CFM11030 - Understanding derivative contracts: what is a derivative?

Exchange traded and OTC contracts

Derivative products can be either exchange traded or bought and sold ‘over the counter’:

• Exchange traded means that contracts are bought or sold on an established investment exchange, such as LIFFE (the London International Financial Futures and Options Exchange).
• Over the counter (OTC) derivatives are normally bespoke contracts which are written by a bank or other financial institution to meet the requirements of a particular client. But the term can also include highly standardised derivative products traded off-exchange rather than under the rules of an investment exchange.

There is more about exchange-traded contracts at CFM11031, and about OTC contracts at CFM11040.