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Over the Counter (OTC) Trading

Over the counter trading in the crypto context is done directly between two parties, without the supervision of an exchange.

Over-the-Counter (OTC) trading is a type of trading that occurs directly between two parties, without the supervision of an exchange. It's called over-the-counter because the trades are conducted via a dealer network, as opposed to on a centralized exchange.

OTC trading is commonly used in stock exchanges and derivatives markets, but it's also very relevant in the world of cryptocurrencies. In the crypto world, OTC trades often involve a broker, who takes the buyer's order and tries to fill it from the seller's orders that are currently in the pipeline.

There are a few key reasons why OTC trading is popular, especially among large-scale traders:

  • Discreet Transactions: Large trades on exchanges can influence market prices significantly. With OTC trading, the transactions are private, and the details aren't published, reducing the potential impact on market prices.
  • Better Prices: OTC traders can often negotiate better prices, especially for large volume trades. Exchanges, on the other hand, offer a standard price for everyone.
  • Higher Liquidity: For large orders, an OTC desk can source liquidity from multiple exchanges, providing an advantage over placing a large order on a single exchange, which can lead to "slippage" (getting a worse price than expected due to the size of the order).
  • Simplified Process: OTC trades can be faster and more straightforward, especially for less experienced traders. The broker handles the process, making it easier for the trader.

However, it's important to note that OTC trading also has its drawbacks. These trades often require a higher minimum investment, which can exclude smaller traders. Also, because they're less regulated, there's a higher counterparty risk if the other party fails to deliver. Therefore, it's essential to conduct any OTC trades through a reputable broker or platform.


Large investors often prefer OTC trading to avoid moving the market:

A company wants to buy 1,000 BTC but doesn’t want to affect the market price. They decide to use an OTC trading desk to find a seller who has 1,000 BTC to sell. The two parties agree on a price and make the trade directly, without affecting the market price of Bitcoin.


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