The growth of the digital world has given rise to several assets and opportunities, such as the OTC (Over-the-counter) markets. OTC involves the direct trading of digital currencies on a decentralized network. Here, interested parties can trade their financial assets outside the traditional exchange platforms. This feature makes them attractive for use by experienced broker-dealers.
OTC trading is the best for trading large amounts of cryptocurrencies without necessarily affecting the market prices. Keep reading this article to learn more about the world of crypto OTC and how to navigate it.
Overview of OTC Trading
OTC is the best financial framework for traders who trade high volumes of funds at a fixed rate. This form of trading has grown over the past few years because it is popular among large-scale investors.
OTC brokers act as intermediaries and provide a secure trading environment. These brokers facilitate the transaction in the closed market. The OTC market has some rules that traders must adhere to despite not being fully regulated. Although there are several OTC trading platforms, the best platforms should have:
- Quick Settlement
- Competitive Pricing
- Personalized Service
What is an OTC Crypto Desk?
The OTC crypto desk enables the transactions between the traders without exposing any trade information to the public. This trade can either be fiat-crypto or crypto-crypto. These desks exist to remove the uncertainty for investors who want to buy or sell large crypto volumes. It helps the investors to mitigate price volatility and ensure transaction privacy. There are two types of crypto OTC desks, they are:
- Agency Desks: Here, there is no assumption about the market risks. Instead, the agency desks act as an intermediary. They broker the deal with the seller on behalf of the buyer; however, they charge a fee for the service.
- Principal Desks: The principal desks assume the buyer risks and purchase the assets the buyer requires with their funds. Here, the OTC desks are responsible for getting and delivering the asset purchased to the buyer.
Top 3 Factors to Consider to Choose An OTC Crypto Trading Site
When choosing a legit OTC trading platform, consider the following:
- Security: Before selecting an OTC trading site, ensure the site employs SSL encryption to protect your data. A good encryption algorithm will ensure that your data is not accessible to unauthorized people. Also, ensure the platform meets the regulatory compliance standards and has multi-signature wallets or codes available.
- Track Record: Check the history and experience of the platform. Look out for the reviews of previous users, as they will show the site’s reliability.
- UI/UX Design: A good OTC trading platform should have an intuitive user interface and experience design. The site must have several trading tools, such as risk management instruments to aid in good decision-making. Also, the site should be flexible and enable you to access the site to trade live via your mobile.
Risks of OTC Trading
The following are some of the risks of OTC Crypto Trading:
Lack of Transparency by Companies
Several companies that trade in OTC are less transparent than what most traders are used to on centralized exchanges. This is because these companies have less strict regulations to keep them in check.
Identifying the best price for an asset may be difficult because of the less verifiable information available. It puts traders or companies at risk of making poor decisions based on false information.
Low Liquidity and Market Capitalization
There are wide bid-ask spreads in OTC trading because there is a low volume of OTC stocks. These stocks have a tiny trade liquidity, which delays trade finalizations. Its low liquidity sometimes makes trade difficult. The stocks of companies that trade in OTC are vulnerable to pump-and-dump schemes.
OTC has a wide range of stocks that change prices hugely with a small trading volume. It enables any individual with a relatively small account to influence the prices.
Benefits of OTC Crypto Trading
Some of the benefits of OTC crypto trading are:
Privacy
A significant benefit of using OTC trading is the privacy it provides. It allows large investors, traders, or institutions to make large transactions discreetly. OTC trading is best if you value privacy when dealing with crypto transactions.
Small Slippage
Slippage is the difference between the requested price and the price at execution. Although slippage in trading can occur at any time, it is more common when there is high market volatility. However, market volatility does not affect OTC platforms because the traders trade directly.
Stable Prices
Most crypto trading platforms are susceptible to price fluctuations due to large volumes of orders. However, OTC trading platforms are unaffected by market price volatility. There is a direct negotiation between the traders, which makes them benefit from price stability.
Cost-Effective
OTC trading is more cost-effective than traditional exchanges. Costs such as operational and regulatory costs are absent in OTC trading. There is also no centralized exchange involved, which leads to low transaction fees.
More Audience
With OTC trading, more companies can trade without meeting the requirements of traditional exchanges. This increases the number of stocks investors can trade, leading to more investor audiences.
Larger Trades
OTC trading platforms enable traders to make large orders without influencing the market prices. These platforms have features such as high liquidity pools. OTC platforms are particularly great for traders who manage insurance companies and must fulfill large orders.
Flexibility
OTC offers their investors a flexible market to customize their trades according to their needs. There are customized pricing and contract terms, which makes this flexibility possible.
Conclusion
Over-the-counter (OTC) trading is a strategy popular amongst large-volume traders. It is a form of trading that helps traders avoid spillage due to price fluctuations. OTC also offers traders smooth trading operations. When choosing an OTC platform, it is vital to look out for the reputation and security of the platform.