Who Actually Owes You Money in an FX Trade?

Picture two ways of buying something. In the first, you walk into a market where every stall posts its prices on a board, everyone can see them, and a referee makes sure the goods actually change hands. In the second, you ring up a dealer you know, negotiate a price, and trust that both of you will honour the deal. Both are financial markets. The difference between them is the heart of this story.

Most foreign exchange (FX) trading — buying and selling currencies — happens in the second style. It's called the over-the-counter market, or OTC. There's no single building, no shared price board. Instead, it's a network of trading relationships built around dealers who quote prices to clients and to each other. To give you a sense of scale, OTC FX trading averaged $9.6 trillion per day in April 2025, according to the Bank for International Settlements. That's trillion with a T, per day. If you tried to count it out loud, you'd need a very patient friend and a lot of chai.

Exchanges versus OTC: the basic split

An exchange is an organised marketplace. It sets rules, centralises the communication of bid and offer prices to everyone trading there, and works closely with clearing facilities that complete trades after the deal is struck. The effect, as the International Monetary Fund puts it in its explainer on market structure, is a level playing field: anyone following the rules can buy as low or sell as high as anyone else.

An OTC market works differently. It's a network centred on one or more dealers who act as market makers, quoting prices to clients and other dealers. Dealers don't necessarily quote the same prices to every customer. They can step back from market making at any time, which means liquidity — the ease of finding someone to trade with — can dry up. OTC markets are also less transparent and carry fewer rules than exchanges.

That last point is not a small technicality. The IMF notes that all the securities and derivatives involved in the financial turmoil that began with the 2007 breakdown in the US mortgage market were traded in OTC markets.

Why credit relationships sit at the centre

Here's the key idea. On an exchange, the exchange's clearing arrangement stands between buyers and sellers, matching and guaranteeing trades. In OTC trading, clearing and settlement remain the responsibility of the buyer and the seller. When you trade with a dealer, you're relying on that dealer — and they're relying on you.

That reliance is called counterparty risk: the chance the other side of your trade doesn't hold up their end. In OTC markets, it's managed through credit relationships. A dealer extends credit lines to clients, sets limits, and decides who it will face and on what terms. Some electronic brokering platforms even treat participants differently by size or credit rating. Your ability to trade can literally depend on how creditworthy someone judges you to be.

This is also why the two-tier structure matters. There's a customer market, where dealers trade with clients, and an interdealer market, where dealers quote prices to each other and lay off risk. Customers generally cannot access that interdealer segment. So the price you see and the price another dealer sees may not be the same thing at all.

Enter the prime broker

Now add a middle layer. Prime brokerage lets a client trade in the name of a prime broker with dealers the prime broker has approved. These are called executing dealers.

As the US Financial Crimes Enforcement Network explains in guidance on these arrangements, the prime broker becomes the counterparty to the transactions executed by the executing dealer and the client. The prime broker is therefore exposed to the credit risk of the opposing parties. Under a master give-up agreement, when the prime broker accepts a trade for give-up, it becomes a binding transaction between the executing dealer and the prime broker — not between the dealer and the client.

Read that again, because it's the quiet magic trick of the whole structure. The executing dealer is now exposed to the credit risk of the prime broker, rather than the client. The client gets access to dealers it might never have reached on its own; the dealer gets a counterparty it has assessed; the prime broker sits in the middle, carrying the credit exposure. It's a bit like a friend co-signing your lease — helpful, and also a meaningful transfer of responsibility.

The New York Fed's Foreign Exchange Committee publishes a Master FX Give-Up Agreement that documents these relationships, alongside a compensation agreement providing for compensation of losses if the prime broker does not accept a give-up of a transaction. In plain terms: the paperwork anticipates that sometimes the co-signer says no.

How big is the piece you can't see?

Interdealer trading accounted for 46% of global FX turnover in April 2025, according to the BIS survey. Trading with "other financial institutions" was 50%. Non-financial customers — companies and the like — made up just 5%, a share that has been sliding. The market is, in the main, a conversation between financial institutions.

It is also concentrated. Sales desks in the United Kingdom, the United States, Singapore and Hong Kong intermediated three quarters of total FX trading. The UK alone accounted for 37.8% of global turnover. Cross-border trading was 63% of the total. So the credit relationships that underpin this market stretch across jurisdictions, and the rules that govern them vary from place to place.

That jurisdictional point deserves care. Reforms since the crisis have pushed some trading from OTC to exchanges, moved post-trade clearing of OTC trades to clearinghouses, and improved trade reporting. But the IMF notes that the dealer's role is not being explicitly addressed in most reforms, except possibly through higher capital requirements. How much protection a given structure offers you depends heavily on where you are and who you're facing.

What this means for an ordinary reader

You are probably not trading $9.6 trillion a day. But the structure matters if you hold anything with currency exposure — a fund, a pension, a business that imports or exports. The questions worth asking are unglamorous ones. Who is my actual counterparty? Is there a clearinghouse standing behind the trade, or is it bilateral? If my dealer steps back, what happens to my ability to exit?

Bilateral settlement means exactly what it sounds like: two parties settling with each other. It is efficient, flexible, and it concentrates risk in relationships rather than in a central facility. That's not a flaw so much as a design choice with consequences.

The honest summary is that OTC FX works remarkably well most of the time, which is precisely why its plumbing gets so little attention. The plumbing is where the credit lives. And credit, unlike the price board at an exchange, is something you often can't see until you need it.