Where are credit default swaps primarily traded?

Credit default swaps (CDS) are primarily traded in the over-the-counter (OTC) market. This trading environment allows participants to negotiate terms directly between themselves rather than through a centralized exchange. The OTC market is particularly well-suited for CDS because these contracts often involve complex terms and conditions that can be tailored to the specific needs of the parties involved, facilitating customized credit risk management strategies.

The OTC nature of CDS trading also contributes to the flexibility and liquidity of these instruments, enabling market participants to engage with a wide range of counterparties. This is in contrast to stock exchanges, which typically facilitate the trading of standardized equity or commodity instruments with less room for customization. Moreover, CDS transactions do not fit within the regulatory framework of futures markets or cryptocurrency exchanges, as they are distinct financial instruments primarily focused on credit risk and not on the equity or digital asset markets.