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What Is Crypto OTC Trading? A Full Guide

There are many ways to trade cyptocurrencies, one of which is over the counter (OTC) trading. You don’t know what it is? No worries, because we’ll explain what it is and how it works.

What is OTC Trading?

If you wish to trade fiat money for crypto assets, the easiest way to do so is using an OTC platform. This is especially suitable for traders who wish to buy or sell large quantities of crypto assets. Centralized crypto exchanges have OTC features dedicated for this purpose because the order books may not be able to handle such large orders.

The process allows buyers and sellers to trade directly without an intermediary. It also provides privacy for the parties involved in the trade. Unlike when you use a crypto exchange to trade, the traders in OTC trading can negotiate the price at which they’ll exchange assets, depending on the volume involved and other factors.

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The price is determined by agreement between the seller and the buyer, rather than by market forces. OTC trades are mostly fiat to crypto, but it can also be crypto to crypto, such as between USDT and Bitcoin for example.

How OTC Trading Works

The OTC trading desk or firm connects buyers and sellers. If you wish to sell crypto for instance, the OTC desk provides buyers and it’s the same if you wish to buy crypto assets. The OTC desk also provides liquidity, that is assets to trade. When a buyer and a seller agree on a price, the OTC desk transfers the crypto to the buyer and then facilitates payment to the seller.

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Although you can place smaller trades via an OTC platform, the actual trade goes through an exchange if the order isn’t very large. Only large orders are executed directly through OTC trades. A major concern when engaging in an OTC trade is that the person on the other side may not hold up their own end of the bargain, but this is very rare if it ever occurs.

How Does OTC trading Differ From Other Trades

The main difference between OTC and other forms of trading is that all other forms of trading involve the use of an exchange, and the price of the asset is determined by market forces. OTC allows two persons – the seller and buyer – to trade without using an exchange, and they determine prices.

Why Use OTC Trading?

There are some advantages to using OTC trading. First, you’ll get better prices at which to buy assets. Large trades that would end up breaking into pieces on an exchange and costing more in terms of transaction fees can be placed at once, which gives a better price overall.

OTC trades also allow you to execute large trades without having to split them. Traditional trades on an exchange have a hard limit that you cannot exceed. Therefore placing such a trade through OTC makes it both faster and more convenient.

Who Should Use OTC Trading?

Since OTC trading is mainly for large orders, it goes without saying that it is the ideal method of buying or selling cryptocurrencies for institutional investors and crypto whales. This includes hedge funds, private wealth managers, and high-net-worth individuals wishing to quickly convert large amounts of cash into cryptocurrencies or vice versa.

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Is OTC Trading Worth it?

This depends on who you are. If you are a crypto whale or you represent an institution such as a hedge fund, OTC trading is definitely the best to use. This is because you can easily trade high amounts of money for crypto almost instantly. As stated earlier, it is also cheaper, so you should definitely use it.

On the other hand if you’re just a retail trader who trades small volumes, you have no business using an OTC platform, because your trades will still be executed via an exchange anyway. It is only necessary to use OTC if you are trading large volumes.


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Alexander Grayson

Alexander Grayson is a seasoned crypto trader with over a decade of experience in the industry. He has a reputation for his analytical approach to trading and his ability to anticipate shifts in the crypto landscape.

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