Over the Counter or OTC with respect to CFDs (Contracts for Difference) means that when you trade a CFD with your CFD broker, the trade is not made over an exchange or market. The transaction or contract of the CFD exists only between you and your CFD dealer and not with any underlying exchange. Therefore you are not protected by laws which usually apply when trading on a government regulated market.
Risks with trading with Over the Counter CFD dealers include not being guarantee arrangements like the Australian National Guarantee Fund. Another risk to consider is your direct exposure to the credit worthiness of your Over The Counter OTC CFD broker. Another risk aspect to consider is that, because the contract is between you and your broker, you are not able to take your contract to another CFD provider to close a CFD trade.