Explained: OTC Trading
An OTC transaction is one in which securities are traded directly between two parties without the intervention of an exchange authority. Over-the-counter (OTC) trading occurs in decentralised marketplaces without a physical presence.
In the realm of Bitcoin and cryptocurrency, OTC, or Over-The-Counter Trading (OTC), refers to private negotiations for the purchase or sale of cryptocurrency. There is no public order book since these transactions do not take place on normal exchanges. Customers and sellers benefit from this privacy.
For OTC consumers, anonymity and the negligible influence on market pricing are the most attractive features. Whales who want to acquire or sell significant sums of cryptocurrency are catered to by OTC.
Slippage would have a significant influence on these “whales” if they were to buy a substantial amount of cryptocurrency on an exchange. If you have a lot of money to invest, OTC trading is a good alternative.
Private crypto trading is estimated to account for over half of all transactions. In addition, some believe that the quantity of crypto traded OTC is two to three times greater than that traded on regulated exchanges.
How does the OTC market function?
Source
Only a few people are aware of how crucial OTC trading desks like Circle Trade are to the crypto sector and what sets them apart from each other. Circle Research’s objective is to provide you with essential market information, and as part of that mission, we examined the relevance, structure, and taxonomy of crypto trading desks.
OTC Pros:
High-volume traders with a large net worth should use this service.
A lot more privacy and anonymity.
OTC Cons:
There is no exchange risk.
Quantity restrictions apply when placing an order.
When is it better to trade crypto over the counter rather than on an exchange?
Due to secrecy and high liquidity, OTC trading is preferred by traders over exchanges. Trading enormous quantities on exchanges have the potential to have a significant influence on the markets.
OTC trading desks do not appear in an exchange order book since the transaction is done directly between the two parties. In addition, you have a higher chance of getting your order completed quickly and for the price you choose.
As opposed to an OTC transaction, on an exchange, there are hundreds or thousands of additional traders, each of whom has a distinct viewpoint and preference when it comes to determining a price.
An order of significant volume on an exchange may cause the market to move against you, resulting in a lower price for your asset and a decrease in the efficiency of the deal.
Who engages in over-the-counter trading in cryptocurrency?
To put it another way, anybody who wishes to swiftly and simply acquire or sell significant sums of cryptocurrency is welcome. Cryptocurrency investors include high-net-worth individuals, institutions, venture capitalists, and hedge funds. As an example, if one OTC desk has a counterparty wishing to purchase an asset and another desk has a seller, they will regularly deal with each other.
The future of OTC trading
There weren’t any OTC counters like the ones we have now five years ago. Since the Bitcoin network debuted 10 years ago, several desks across the world are now trading billions of dollars a year, demonstrating just how much the business has evolved since then.
Although cryptocurrency OTC desks handle billions of dollars a year, there is still a significant amount of space for development in the industry. OTC firms like Circle Trade will be there to keep the markets moving as crypto assets increase and new ones are launched.
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What’s the purpose of an OTC Desk?
Most cryptocurrency merchants have a tough time buying or selling huge quantities of currency. Let’s assume that you wish to acquire 1000 BTC at this point. The first hurdle to overcome is that it will be difficult to get all that money from just one vendor at a time.
Due to the time and volatility involved in executing a big order on one exchange, it’s unlikely that all of your assets will be purchased at the same price from a single seller.
Trading on OTC desks, on the other hand, has addressed the issue of purchasing large quantities of cryptocurrency. You may purchase as much Bitcoin as you like in a single transaction at the principal or agency desk.
