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What is OTC crypto market

Jan 30, 2023
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The cryptocurrency market is diverse and difficult to understand, especially for beginners who have just started their careers as traders. However, if you want to succeed in the cryptocurrency market, you must constantly study it and learn something new. For example, one of the most interesting topics related to the cryptocurrency market is called over-the-counter trading. In order for you to understand this topic, we decided to prepare for you an interesting article that will answer the most frequently asked questions about the over-the-counter crypto market and over-the-counter crypto trading. Let's get started!

Every trader should be familiar with the concept of an OTC transaction.

What is over-the-counter crypto market or over-the-counter crypto trading

Already by the name, you could guess that over-the-counter trading means trading cryptocurrencies outside the exchange. Traders resort to this type of transaction if it is necessary to maintain the increased confidentiality of the seller, and also if the transaction takes place on individual terms. The services of OTC platforms are often used by large investors. For example, earlier Microstragety CEO Michael Saylor said that he acquired part of his bitcoins through an OTC deal.

OTC brokers seek to provide liquidity for the so-called “whales” who lead the top bitcoin rich and make trades of at least $100,000. Since individuals who hold their fiat millions in cryptocurrency and regularly make large transactions, there are not so many in In general, brokers are aimed at a new type of client - institutional investors.

This term is not specific to the cryptocurrency market. OTC trading is also very popular in traditional stock markets, with experts estimating that up to 30% of all stock trading takes place through OTC transactions. In the realm of cryptocurrencies, this percentage is estimated to be even higher.

Trading in an over-the-counter transaction takes place between two participants in a closed trading market. The main difference between the closed market and regular exchanges is that the price of a coin on the exchange can be different. At the same time, on a closed exchange, participants closed their private coin price. During such over-the-counter trading, the seller can set exactly the price at which he is ready to sell the assets, the buyer - exactly the price for which he can buy coins.

In an over-the-counter transaction, participants will independently agree on the exchange or sale of coins. The transaction can be calculated for the use of cryptocurrency for cryptocurrency, as well as for the use of cryptocurrency for fiat.

It is rather difficult to establish exact data on the ratio of markets. The OTC market does not disclose information to prying eyes, and crypto exchanges contain hidden pools for 'whales' to avoid market manipulation during large purchases/sales of cryptocurrencies. Large transactions can be traced, but it is difficult to determine for what purpose they were carried out. For example, crypto exchanges can transfer large amounts of profits to cold wallets for long-term storage.

When it comes to crypto exchanges, it means buying or selling for small amounts. OTC trading involves a one-time exchange of amounts in excess of several hundred thousand dollars, so the OTC market is not suitable for players who do not have such investments.

The OTC trading market is a professional platform through which sellers and buyers interact directly.

Features OTC crypto trading market Exchange crypto market
Deal Features Deal directly with contractors The deal is anonymous
Who is the guarantor Over-the-counter broker Cryptocurrency exchange
Terms of a transaction Individual Standard

What is the difference between Principal and Agency OTC Trading Market

The task of the OTC market is to ensure the healthy state of the crypto market. Selling a cryptocurrency even for a small amount of one or several million dollars on a separate crypto exchange can lead to a strong collapse in the rate, which should not be allowed.

The process of trading through the main tables or over-the-counter trading markets implies that funds will be used to purchase the requested assets at the request of their clients. Thus, the stock trader takes on a certain risk instead of his client.

What is the mechanism of this process?

In one of the app's chats, a market trader responds with a price that is supported by current rates and conditions.

You, as a client, are able to either reject the offer, or offer your own conditions or accept the conditions of the trader. At this moment, the OTC trading market assumes the obligation to deliver the asset to the customer, according to the agreement that is signed at the beginning of cooperation, i.e. at the time of registration in the application.

At this time, the OTC trader or OTC market provider is looking through its network for the most convenient way to purchase the required assets.

It is important to be aware that the process of an OTC trade transaction involves a certain risk associated with the fact that in order to purchase assets for a particular client, OTC.

In OTC markets, the buyer can find the most personal conditions for the purchase of assets

In a situation where the principal is an over-the-counter trader, it is important to consider that the trader seeks to acquire the necessary assets at a price below the market price, because he needs to make a profit in some way.

The OTC trading market provides the client with instructions on how and where to pay for the assets he needs. Sending assets occurs only after payment by the client.

A transaction on an OTC trading platform may not take place if there has been a jump in asset prices

Agency type OTC trading markets do not take market risk because they do not trade their own funds. The client only pays a commission, thanks to which the market acts as a kind of intermediary on behalf of the client.

So, if you decide to buy assets through an over-the-counter trading agency, then at the beginning you would have to fund the account, offer your price for the assets. After that, the agency will make an attempt to buy assets at a price determined by the client. It is important to understand that there is a risk that it will not be possible to buy assets, because the transaction may be completed at a time when the price of assets may increase.

In the case of sharp price movements, there is a chance not to have time to exit at the right prices. A trader on OTC almost always has to trade ahead of schedule (otherwise it will be too late to enter or exit, and it may not work out and you will have to catch up with the price).

The specifics depend on many factors: how large your order is, and therefore how desirable a client you are, what is the spread per coin and how many offers are available.

Why do some traders choose to trade through OTS Market Desk

  • One of the main advantages of OTC trading is liquidity. The fact is that cryptocurrency exchanges are characterized by low liquidity. They strive to fulfill a large order through its crushing. Trading in the OTC market reduces the risk of large price fluctuations. Here you can sell a large amount of cryptocurrency.
  • One of the main reasons for the popularity of over-the-counter trading markets is the ability to maintain privacy. Due to the fact that there are no third parties during the transactions, the currency exchange remains private and you do not have to worry about its security.
  • OTC markets allow high-volume transactions without attracting too much attention, and in addition, enable brokers to take into account the needs of clients as much as possible. Even those companies that are not listed on exchanges or have a bad credit rating can trade on them - however, lawyers usually have to do complex technical work that takes many hours to prepare OTC transactions.
    It is also worth noting that OTC transactions are direct transactions between the seller and the buyer, which do not involve the participation of third parties and therefore do not have any restrictions. The probability of fraud is reduced to zero, because the buyer of the coin can track who exactly sold the assets to him.

What is a yellow card in OTC crypto trading

One of the most popular OTC trading centers is called the Yellow Card. The work of the Yellow Card takes place in any large enterprise. Thanks to the Yellow Card, traders can buy any number of observations, without any wallet restrictions. In addition, thanks to the guarantee of availability from experienced traders, everything is repeated confidentially, which is another guarantee of your safety.

Why over-the-counter trading is preferred by crypto players

OTC allows large investors to trade at more favorable prices, and the appearance of a major player on the exchange in one way or another will affect the price of the cryptocurrency without going unnoticed.

The over-the-counter bitcoin market has great room for growth as institutional investors enter the arena looking for a familiar and reliable service similar to traditional financial markets.