The Over-The-Counter and Interbank markets (OTC Market) for precious metals and foreign exchange represent
one of the most liquid markets in existence today. Billions of dollars of precious metals and foreign
currencies change hands daily in the OTC Market.
The OTC Market is a highly capitalized, decentralized market where trading occurs on a
dealer-to-dealer basis and trades are settled directly between the principals. Each
OTC transaction is a unique and non-fungible trade; each element is negotiated between
the parties. Trades are settled either by the exchange of precious metals for currency
or the exchange of various currencies.
Trading can occur in "Spot" precious metals and foreign exchange or for deferred delivery
through a Negotiated Forward Agreement. In a "Spot" transaction settlement of the trade
(the exchange of physical precious metals versus currency usually U.S. Dollars)
occurs 2 business days after the Trade Date. In a Forward Agreement, trade settlement
occurs on the Deferred Delivery Date agreed to between the parties.
Settlement of physical precious metals can be made via depository delivery or by
delivery to a mutually agreed upon location. Settlement of foreign currency generally
is accomplished through deposits at an agreed upon financial institution. Foreign exchange
transactions can and do involve the receipt and/or delivery of
physical bank notes.