What Is OTC Trading and How Does It Work?

What Is OTC Trading? 

Over-the-counter (OTC) trading is a crypto trading format conducted outside of exchanges. Buyer and seller enter into a transaction through a broker or a special trading platform without resorting to public orders.  

Advantages of OTC Trading 

OTC crypto attracts market participants due to several key advantages: 

• Flexibility: the terms of transactions are negotiated individually, which allows for considering the interests of both parties; 
• Confidentiality: trades are conducted without disclosing information about the participants; 
• Price stability: the absence of a public order helps avoid sharp fluctuations in the value of cryptocurrencies. 

How Does OTC Trading Work? 

The process of concluding an OTC transaction is as follows: 

• A client (buyer or seller) approaches a broker with a request. 
• The provider selects for them a counterparty ready to conduct the transaction on agreed terms. 
• Participants agree on the price and volume, after which the exchange of cryptocurrencies is performed. 

The transactions involve large liquidity providers (financial organizations, miners) that provide assets to fulfill requests, as well as institutional investors, companies, and wealthy individuals who prefer privacy and speed. 

How Does OTC Trading Differ from Trading on an Exchange? 

The main difference between OTC trading is that there is no need to split a large transaction into small orders. On an exchange, large transactions often require multiple transactions, each at a different rate due to volatility and limited liquidity. This can increase costs and make the process more complicated. 

In OTC trading, the transaction is conducted in a single volume, which reduces the risks of price fluctuations. Moreover, such transactions remain confidential as they are not displayed in publicly available order books. 

OTC Trading Risks 

Despite the obvious benefits, disadvantages are also inherent in OTC trading. What are these risks? Let’s take a closer look: 

• Lack of transparency: executing a trade off the exchange makes it difficult to verify terms and prices; 
• Liquidity: some assets are difficult to sell quickly at a favorable price; 
• Regulatory risks: lack of clear regulation of OTC can lead to legal problems. 

To reduce risks, it is important to carefully analyze the terms of the transaction and find reliable partners. 

How to Choose an OTC Trading Provider? 

We have compiled a list of key criteria to pay attention to: 

• Reputation: study the company’s reviews and history; 
• License: check whether the provider is regulated in your jurisdiction; 
• Trading conditions: evaluate commissions, minimum transaction volumes, and available instruments; 
• Customer support: make sure the support team is quick to respond and ready to help; 
• Security: the broker should guarantee the protection of your data and funds. 

Attention is the main factor that will help you reduce risks and find a provider with comfortable trading conditions. 

Conclusion 

OTS is the optimal solution for investors who make transactions with cryptocurrency for large amounts. The main advantages are privacy, flexibility, and price stability. However, remember that the success of transactions directly depends on the provider’s reliability and a careful analysis of conditions and risks. 

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