● Intermediate Technology

What OTC Trading Is and How It Can Help You?

8 minutes 7 months ago

Understanding Crypto OTC Trading

Crypto OTC Trading involves directly exchanging crypto assets between two parties in a closed trading market. Unlike traditional exchanges with many listed prices, OTC trading uses private prices set by each party, thus enabling them to negotiate deals based on their respective interests and holdings.

An OTC trade occurs when parties mutually agree on the trade price or exchange terms. These can be crypto-to-crypto trades (e.g., swapping ETH for USDT) or fiat-to-crypto trades (e.g., exchanging AUD for BTC and vice versa). In either case, the involvement of a dedicated "trading market or desk" is crucial for facilitating the transaction.

Principal OTC Trading vs. Agency OTC Trading

Principal OTC trading involves brokerage firms purchasing securities in the secondary market, holding them for a period, and then selling them. The main goal of principal trading is to profit by capitalising on the difference between the purchase and selling prices.

Agency OTC trading entails a broker matching buy and sell orders from different clients without taking ownership of the securities. The broker acts as an intermediary between the exchanges and the clients, executing trades based on the client's instructions.

Here are some key differences between agency and principal trading:

Risk: In an agency transaction, the trader avoids risk as they act as an agent for the buyer or seller. In principal trading, the trader takes on the risk for their account, making them vulnerable to market fluctuations and potential losses if the market moves against them.

Trade Size and Timing: Agency trading is typically used for smaller trades or those not requiring immediate execution, while principal trading is more suitable for larger trades or those with time-sensitive demands.

Commissions: Agency trading typically involves lower commissions since the trader bears no risk and acts solely as an agent. Meanwhile, principal trading usually provides higher commissions to offset potential losses because the trader undertakes risk on their account.

Why Do Crypto OTC Desks Exist?

Crypto OTC desks are crucial due to the inherent difficulties in buying or selling large amounts of cryptocurrency. For instance, if you buy 500 BTC on a crypto exchange, it's unlikely that a single seller could offer all 500 BTC at once.

As a result, you have to purchase from multiple sellers, resulting in slippage. Slippage occurs when you exhaust available sellers at your desired price, causing you to buy the remaining BTC at higher prices, deviating from the original market rate.

To avoid slippage, a more effective approach would involve spreading the purchase across multiple exchanges and buying fractional BTC at the best available prices on each platform. However, this strategy would require onboarding with multiple exchanges and significant time investment while incurring transaction fees for each trade.

This is where crypto OTC desks, particularly principal desks, offer a solution. They provide a single quoted price, and if you accept, they deliver the complete 500 BTC without any hassle and without undertaking any legwork.

Advantages of Trading with OTC Market Desk

Liquidity: Liquidity plays a pivotal role in trading through the OTC desk. To effectively execute large orders, crypto exchanges may need to break them into smaller pieces. Meanwhile, purchasing cryptocurrencies through OTC desks minimises the risk of price spikes, as these desks can handle significant crypto volumes.

Direct Transactions: OTC desks empower buyers and sellers to engage in direct trades without involving any intermediaries or facing restrictions. This addresses the issue of scam schemes that often operate under the guise of third parties. Through direct transactions, buyers can easily trace their sellers, ensuring a more secure and transparent trading process.

CoinSpot Crypto OTC Trading Desk

CoinSpot's specialised Over-The-Counter (OTC) Trading Desk allows customers to perform high-volume transactions without needing traditional public order books at a 0.1% fee. CoinSpot customers can deal directly with a professional Account Manager and enjoy direct access to high-volume liquidity sources and competitive pricing for higher-volume trades.

CoinSpot provides an automated OTC service that is available 24/7, so you can get a quote at any time outside of the OTC consultant's working hours. With lock-in pricing and low fees, traders can avoid the waiting time offered by other exchanges and access efficient and seamless market execution across a wide range of cryptocurrencies.

The Future of Crypto OTC

A few years back, crypto OTC desks were not as prevalent as they are today. The landscape has significantly evolved, with multiple desks now operating globally, facilitating trades worth billions of dollars annually. This growth is a testament to the industry's remarkable expansion since the Bitcoin network's inception a decade ago.

Over-the-counter trading has become an indispensable component for high-volume crypto participants, such as funds and large miners. OTC desks allow them to buy and sell in large quantities discreetly without drawing unnecessary attention.

Moreover, OTC desks have been pivotal in establishing cryptocurrencies as an emerging asset class, fostering greater institutional acceptance. As more institutional players enter the crypto markets, the demand for OTC trading services is only expected to surge, further propelling the growth and maturity of the crypto space.

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