A Simplified Guide to OTC Crypto Trading


As a trader, if you are interested in bulk purchase of any cryptocurrency, you may face several hurdles. The major issues being: increased cost due to high trade volume and risk of theft or being hacked. To avoid these issues in trade of a large sum of cryptocurrencies, OTC comes into the picture.

OTC i.e. Over-The-Counter Trading is a deal that happens via a dealer network surpassing the exchange. Generally, it is available to certain individuals or groups who have a high trading volume.  OTC deals have a wide range of assets like Derivatives and Stocks. Traders take the assistance of dealers, brokers or middlemen and may not get involved directly. Usually, when smaller companies are unable to comply with the listing regulations of a formal exchange or are short on paying the fee, they use OTC to trade their securities. This, however, is not limited to just small players.

Major giants like Danone, Nestle, Bayer are using OTCQX, a top-notch OTC Trading marketplace for trading their shares. OTC has gained immense popularity with the freedom and opportunities it presents. However, it comes with its own set of risks. With popular exchanges like Binance, Circle, and Coinbase offering their own OTC desks, it is safe to say OTC is a favorite among crypto investors.

Major Customer Base of OTC Desks

Crypto miners and early investors are generally the major sellers while institutional investors and hedge funds act as buyers. OTC has seen a surprising increase in the hedge funds and institutional investors. Over the Counter, trade has attracted some prominent exchange like Coinbase, Bithumb, Huobi to offer exclusive OTC desks for their institutional clients. But it is not limited to just major players.

In short, anyone who is interested to buy a large amount of cryptocurrency or securities can invest in OTC trade. It does not involve excessive regulations and sometimes offers better terms than normal trading.

trade at pcex

Ways of Trading in OTC

There are three major ways to trade in Over the counter trading:-

Brokers: Brokers act as a link between the liquidity providers who hold large quantity of cryptos and the traders seeking to buy these cryptocurrencies without increasing the cost of the cryptocurrency. Eg.- HiveEx.com and itBit.

Chat Rooms: These promote peer-to-peer transactions directly between parties. Hosted on various IRC channels they offer a network for OTC trading.

ATMs: Bitcoin has its own ATM where you can exchange your fiat currency into Bitcoins without the need of an online exchange.

Advantage of OTC trading over Crypto Exchange (for normal traders)

As a trader, if you are looking for high liquidity while maintaining a level of anonymity, OTC may be the solution for you. Most exchanges offer a low level of liquidity than is ideal. This is where OTC trading can be your answer to invest more.

It helps minimize the impact on the market that may result in increased price in case of high trade volume. This is possible because the OTC trading takes place off the order books without affecting the price.

An order book is a compilation of all outstanding buy and sell orders of a specific crypto pair listed by price level.

To maintain a certain level of anonymity when you are investing in any Bitcoin or Altcoin you can opt for OTC where you forego the formal exchanges. Here, you opt for a dealer network to trade.

Hence, OTC can be beneficial in trading large sum of cryptos without affecting the market while maintaining anonymity and gaining high liquidity of assets.

Amount of Cryptocurrency needed to start OTC trading

Each OTC desk has a different threshold for starting OTC trading. Some institutional OTC desks like Coinbase, Bithumb offer a high starting limit to their institutional investors. This limit, however, is lower for the small and intermediate traders.

For small companies and traders, private chat rooms offer a better environment for OTC trading. You can also use Telegram and Skype to directly connect with buyers who want the same amount of cryptos you are selling.

Identify a Suitable OTC Desk/ Features of a good/suitable OTC desk

If KYC and AML policies don’t bother you, use OTC desk services offered by crypto exchanges. But for a decent level of anonymity, you can choose private dealers and smaller companies. Desks operated by exchanges like Binance, Coinbase, and other exchanges have KYC procedures that you have to comply. If you are okay with sharing your private data then these exchanges provide a chance to enter OTC trade.

In case you want to maintain your privacy, smaller services are the option for you. Platforms like Changelly, a noncustodial instant crypto exchange, have their own OTC service with smaller OTC limits and compliable terms to start OTC trading. The other option is to opt for direct deals with a broker or client. Remember, the rate exchange fee in a broker deal may be based on a flat rate or a trade volume based rate.

It is imperative to do your research on the broker and his/her past record before entering into a transaction. Research about their past experience, specializations, and services offered before opting to do trade can prevent future risks.

Problems posed by OTC Trading/ Risks of OTC Trading

Just like any other trading, OTC comes with its own set of risks. Scammers and risk of the settlement are the major problems in OTC. Over the past years, there have been many instances where the traders are scammed by false agreements and phishing techniques. In fact, LocalBitcoins has issued many warnings about such fraudsters. You can protect yourself from such instances by doing proactive preliminary research before trading and avoiding any suspicious deals. Custodial Solutions are a third party based security and storage services for cryptocurrencies.

The OTC brokers do not provide a trustworthy custody solution which poses a problem in mitigating settlement and operational risks. To avoid such issues, many trader use bank transactions and escrow accounts to get a return in case the deal is not completed.


Measures to resolve the problems of OTC/ Measures to resolve the Risks

With the growing popularity and adoption of OTC, companies are working on building risk management systems and trusted custodial solutions. OTC market is expected to grow at a steady rate and financial insiders are exploring secure ways to attract more institutional investors towards crypto.

Fidelity, the world’s 5th largest asset manager is working to develop a cold storage that will hold assets from large OTC crypto trading firms. Coinbase, a popular exchange is also offering its own OTC desk that helps customers confirm the price and trade before transfer of funds.

To sum up, we can say that with OTC catching the eye of some prominent players like hedge funds and institutional investors, it will remain on a steady rise in the coming years. A more secure way to transact while eliminating the risks will ensure further growth of OTC trading.

Want to know more about the crypto world/ cryptosphere? Refer to our blogs on Crypto Market for more information.

Don’t forget to like, share and comment.

How useful was this post?

Click on a star to rate it!

Leave a Reply

Your email address will not be published. Required fields are marked *