Over-the-counter (OTC) cryptocurrency trading is an important issue for a large number of people, however, newcomers may not be aware of the basics of it or what it does. If you’re keen on trading in cryptos and want to know more about it, it’s essential to know particularly when you begin investing more effort as well as money.
This is a detailed explanation of OTC trading and the purpose for which it serves and the way it can be used.
What Is OTC Crypto Trading?
In an easy way to explain, OTC trading is an exchange of cryptocurrencies between two parties that is done outside the formal trading exchanges. It’s normally done between a buyer and a seller who agree on a price and exchange their coins using different methods.
What Is An Exchange?
An exchange is basically a website where buyers and sellers go to trade their cryptocurrencies. There are several exchanges available on the internet, with some of them being known as “crypto-only” exchanges because they don’t support any fiat currencies.
The main difference between OTC trading and using an online exchange is that most exchanges don’t charge any transaction fees for making trades, unlike OTC transactions which may cost more than what you would pay on an exchange. The fees are charged because it’s not automated like the trades done on an exchange where you have software that can do it for you at the touch of a button or automatically when your trade order is filled. On OTC, there is a need for a broker who will guide you through the transaction.
Banks and brokers as well as other cryptocurrency trading companies use this OTC trading to be able to trade with their clients directly without having to go through an exchange. This will depend on the relationship they have with their clients and how they want to operate their business. It’s not uncommon for a bank or broker to have accounts with several exchanges so that they can trade on behalf of their clients when there is an order.
The process of OTC trading is less complicated than going through an exchange, which is why it’s mostly done by banks, brokers, and other trading companies who have accounts in several exchanges and can make transactions from there if needed. The fact that it’s not automated means that the client may need to give specific details about how he wants his transaction done including the payment method he’d want to use among other things.
What is the Point of an OTC Trade?
The main reason for OTC trade is that whoever is involved in the transaction doesn’t have access to the trading channels or exchanges which are available. This may be due to several reasons like being barred from the exchange for whatever reason or not having a bank account where fiat currencies can be deposited and withdrawn. If you need to make transactions on an exchange, you will need a bank account or credit card so that you can deposit and withdraw fiat currencies.
Several cryptocurrencies are not available on any exchange and can only be traded OTC, which is why people who own them need to find someone willing to buy them before they can make use of their coins. In most cases, it’s done by people who believe strongly in the project they invested in and want to sell their coins at a higher value before they lose value or become worthless.
A large number of people who want to trade cryptocurrencies prefer doing it through an online exchange because it’s automated and easy to use. This means that you don’t have to know how to trade, but this also comes with a downside. Exchanges charge fees which can be quite high depending on the volume of transactions you make and they are also vulnerable to hacks which can cause them to close down.
There are several reasons why an OTC trade may be better for you than an exchange transaction including, but not limited to:
You will not have to pay any fees for using the OTC trading platform instead of paying the fees charged by exchanges.
There is no need for you to register and provide personal information when using an OTC trading platform as is required when signing up for an exchange. You will only need your wallet address or other details depending on the type of transaction you want to make.
You can get a better price on your cryptocurrency if you decide to sell it directly instead of selling it on an exchange where there is a spread between what buyers and sellers are willing to pay or sell at.
You will have more control over your transactions as you can decide on the terms of the trade and how much should be paid for your coins.
To find someone willing to buy cryptocurrencies OTC, you can use websites that list people who are willing to make such trades or ask around among your friends and family or on social media groups. You need to be aware that there is a risk of being scammed so you should only deal with people who have a good reputation or are willing to pay for insurance against fraud if they agree to meet in person to complete the transaction.
If you want complete control over your cryptocurrency trading, try using an OTC trading platform as it will give you all the freedom you need.
OTC Trades and Liquidity
A common misconception is that OTC trades are not as liquid as exchange trades. This is false. In the cryptocurrency market, liquidity refers to the amount of money available for trading and investing in a certain asset.
OTC trades are just as liquid as exchange trades because there are plenty of people willing to buy or sell cryptocurrencies OTC at any given time. The only difference is that the transactions are done directly between two parties and not through a centralized exchange.