Over-the-counter (OTC) crypto trading has become a fairly big deal for a lot of people, but newcomers might not know what it is or how it works. If you are interested in crypto trading, then it is an important thing to understand, especially once you start putting more time and money into it.
Here is a breakdown of OTC trading and what it is for, as well as how it should be used.
What is Over-The-Counter Trading?
There are two types of trading with cryptocurrency – those that use exchanges and those that do not. OTC traders are the second type, completely ignoring an exchange and focusing on more personal, one-to-one trades between crypto owners.
There are countless OTC trading forums and marketplaces where cryptocurrency can be managed without an exchange, allowing for extra privacy and more control over how the purchased currency is used.
What is the Point of an OTC Trade?
An OTC trade is useful because it avoids issues like ‘slippage’ and the purchasing of liquid assets. It also provides more security since there is not a risk of the platform itself being hacked or shut down when your funds are placed into it.
OTC also provides more control. A seller can choose the price they want to sell for, or the buyer can choose the price they want to buy for, and then they wait for somebody to come along who wants to complete the trade. There are also no third-party limits on how this trade can be made.
For example, this might mean that a deal is made between two companies that involves cryptocurrency and a physical asset – something that can’t be managed through a crypto exchange.
What are OTC Markets?
In situations where a deal is not personal, OTC markets are slightly different, but they still offer a range of benefits. For example, they are less transparent, meaning that each side can keep the price involved private without having to share it across an entire site.
This also means that there are no physical or digital ‘locations’ involved in the trade. A particular server does not have to funnel the currency through, which means that there is almost no chance of a company being completely unable to trade.
OTC Trades and Liquidity
Liquidity is the most important part of OTC trading. Most crypto trades have low liquidity – the ability to turn it into cash easily. Due to the way that OTC trades work, liquidity reduces price slippage, which Is the difference between the expected value and the actual price of a trade.
OTC trades also make it easy to buy larger amounts of cryptocurrency at once from the same individual, something that can be extremely useful in many different situations. Many exchanges break up larger transactions, which can often make it hard to buy a lot for a single price.
If you want to know more about how an OTC crypto order works or how you can calculate the actual benefits and drawbacks of an OTC trade, then you should spend some time learning the basics. The more you know, the easier it becomes to handle.
This article is for information and educational purposes only and does not form a recommendation to invest or otherwise. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.