How Does Crypto OTC Trading Work?

OTC trading plays a crucial role in the crypto industry, but not everyone understands how stuff works. Like its traditional financial counterparts, crypto OTC deals with immense volumes, outside the public eye periphery, and with seeming opacity. In this article, we’ll quickly brief you on what the practice is all about, as well as how it actually works.

Definition: Crypto OTC Trading

If you’d want to enter the financial markets either as buyer or seller, you can trade in two different ways – exchange or OTC.

So exchanges such as NASDAQ happen publically, and these act as negotiators between the two parties. The quotes for the sale of assets as well as the offers to bid are all posted by traders.

Crypto OTC or over-the-counter trading, on the other hand, is directly made between two parties without the mediation of exchange. Technically, it’s just an alternative way of trading stocks, currencies, derivatives, etc., that takes place through the broker-dealer network with guaranteed privacy.

In other words, it’s a crypto-to-crypto or a crypto-to-fiat trade and can often deal in larger volumes than exchange. The work out of the transfer also happens between the two parties. For your information, forex (foreign exchange) is amongst the most popular OTC markets where the currencies are traded through a network of banks rather than exchanges.

How Does The Process Work?

Most merchants support liquid trading pairs such as BTC, Ether, Litecoin, Stellar, XRP, and more. Additionally, fiat currencies may include USD, EUR, CAD, etc. Pricing in crypto OTC trading is quite straightforward and transparent. The liquidity is readily available (but fragmented across several venues). Plus, each OTC desk has individual order books to connect multiple providers for trading significant amounts without subsequently influencing the markets. They’re also responsible for providing lock in prices to fill or kill. Plus, they save clients’ money by offering competitive deals.

Opposed to the assumptions, it’s a reasonably straightforward process. Customers usually reach the OTC desks via chats/ applications/ websites and put in their requests for a feasible quote. The desk checks the available liquidity from the aggregated exchange or the network before quoting the buy/ sell price.

When the customers confirm the trade, the desk executes the orders (in a number of ways).

But for the entire process to happen seamlessly, the trader must own a high-risk merchant account for the business to materialize. It’s one of the many prerequisites that make the trade trustworthy, successful, and flourishing in the future.

Since buying and selling in huge amounts is challenging, crypto desks exist while working in an organized structure and scope. The trade always happens between an individual/ company and a dedicated desk, which also helps avoid slippage.

Future Of Crypto OTC

If you talk about the situation just a few years back, OTC desks didn’t exist the way they do today. Now, multiple ones are operating globally and on a broader scale. Not just thousands, but trading billions of dollars annually, shows how much the industry has grown in just a short time. As the existing assets grow and newer ones are introduced continuously, OTC desks are here to stay and will be behind the scenes keeping the markets going.

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