What is OTC? Why should you trade BTC on the OTC market?
OTC is a popular trading market. So what is the OTC market? How does OTC trading work? Find out here!
In Crypto, in addition to mainstream trading on CEX or DEX, you will often hear about OTC transactions made between users, or sometimes from “big hands” like Whale or funds.
This article will help you know:
- What is OTC trading, how does it work?
- Why should large value transactions like BTC use OTC instead of buying on the exchange?
- Advantages and disadvantages of the OTC market.
What is OTC?
OTC stands for the phrase Over The Counter, is a term used quite a lot in the stock market, referring to stocks that have not been listed on the exchange.
In Crypto, OTC is used to describe private transactions to buy or sell cryptocurrencies that are not done on regular exchanges, with no public orderbook.
OTC trading is still very popular today because of its privacy and low impact on market prices.
OTC trading is of great help to “Whales” – aka whales, who are looking to buy or sell large amounts of cryptocurrency.
If these “Whales” buy a large amount of cryptocurrency on an exchange, their trading will be heavily affected by the slippage. This makes OTC trading an optimal choice for high net worth individuals looking to make large trades.
It is estimated that more than half of crypto transactions take place through the OTC market. Furthermore, the OTC trading volume is two to three times larger than that of conventional exchanges.
How does OTC trading work?
OTC is essentially a slightly private service, it exists at many levels, from individuals (small) to organizations (large).
On a personal level, it can complete verbal agreements, upheld by trust between buyers and sellers.
It’s more complicated for large institutional OTC exchanges, they maintain a network of crypto investors (buyers) and sellers of crypto.
- OTC traders are constantly updating who is buying, selling, and the best time to take a certain trade.
- When a buy or sell order comes in, the broker buys the cryptocurrency or fiat currency needed to execute the trade.
Advantages and disadvantages of the OTC market
No third-parties: One of the main benefits of OTC trading over centralized exchange (CEX) trading is that they cut out the middle man. Sellers and buyers can cooperate without any third parties, which means faster cooperation and less commissions (cheaper transaction fees).
Anonymous: The OTC market is an alternative to standard CEX exchanges. However, in order to use it, you do not need to share any personal data, as you will be directly connected to the agreeing party.
You can then arrange the transaction in whatever way is convenient for you – via e-mail, chat, phone call,… No need to register somewhere or provide information your personal information for any website or company.
High Liquidity: In contrast to conventional exchanges, using the OTC market, you will be able to trade large amounts of cryptocurrency without slippage. As a result, you can convert some of your assets into cash.
However, the OTC market also has some disadvantages. Therefore, it is essential to be aware of them before deciding:
Time consuming sometimes: If you decide to transfer a large amount of Bitcoin, up to hundreds of millions of dollars, OTC is the better choice. However, you will be forced to wait because processing large transactions can take time.
Affected by Volatility: Since the amount of Bitcoin available can be rapidly changed due to large volume transactions, the price of a Coin or Token can also change. This is why OTCs are susceptible to volatility. However, this problem is not new to crypto enthusiasts.
High Risk: Less regulation is not only an advantage of OTC trading, but also its disadvantage, which means you are at higher risk of being scammed. Therefore, always check the details of your transaction carefully to minimize the chances of fraud.
Bitcoin & Crypto OTC Trading Guide
Here is an overview of the steps for OTC trading Bitcoin and other coins:
Step 1: Find a place to trade OTC
At this step, make sure you find a reputable OTC trading platform. You can search online or you can also ask for referrals from people you trust. If they have a website, double-check their team and background.
Step 2: Decide on the terms
Specify the cryptocurrency (if you are not trading BTC), how much you want to buy, when you want the trade to take place, and your desired price.
Step 3: Negotiate the price
The partner will answer with their own price and you can negotiate. Once both have agreed on a price, the value is tradable. During this phase, OTC and related parties can also perform KYC due diligence – identity verification.
Learn: What is KYC and AML? How to make KYC successful?
Why should you trade OTC instead of regular exchanges?
Traders use OTC instead of Crypto exchanges like Binance, FTX for privacy and high liquidity.
If you trade in bulk on exchanges, you can make an impact on the market. If you use OTC trading, the impact is less because the transaction takes place directly between two parties. You also have a better chance of having your order fulfilled in one go at the price you want.
In addition, some OTC markets are only open to certain Coins & Tokens with high liquidity and high volume requirements ($50K – $1M).
According to CoinTelegraph, there are OTC markets that only allow trading larger than 20 BTC, and the majority require their investors to trade the equivalent or at least $250,000 or more.
Above are some of my thoughts on what OTC trading is and the reasons why you should and shouldn’t trade OTC. If you have other questions related to the above topic, please comment below so that idolmeta.net can help you right away!