OTC (Over-the-Counter) trading has become a key element of the crypto market. In 2024, OTC trading volume increased by 106%.
OTC trading is especially crucial for institutions, hedge funds, and high-net-worth individuals. It allows them to execute large trades privately, avoiding market fluctuations. OTC trading also provides access to better deals and deeper liquidity.
Ready to discover what OTC trading in crypto is and why it plays a significant role in the market?
Here we go!
Understanding OTC Trading in Crypto
OTC is short for Over-the-Counter trading and means buying or selling cryptocurrency directly between two parties, without using a public exchange. The price is set on an OTC crypto exchange platform between the buyer and seller rather than through an order book.
This method is commonly used for large transactions. Investors and businesses use OTC trading to move significant amounts of Bitcoin, Ethereum, Litecoin, Ripple, and Bitcoin Cash. It helps avoid price slippage that typically occurs when large trades are executed on public exchanges.
Any Difference between OTC Trading and Exchange Trading?
Sure! Traditional crypto trading occurs on centralized exchanges like Binance. Such platforms match buyers and sellers through an order book, where prices fluctuate based on supply and demand. Every trade is visible to the public.
OTC trading differs in several ways:
- There is no public order book. As a result, prices remain private.
- Trades are made between two parties without automatic matching.
- OTC trading helps avoid the price movement seen in exchanges when big orders are placed.
On exchanges, placing a large order may shift the price. OTC trading prevents it by allowing private, large-scale deals.
How Does Crypto OTC Trading Work?
There are five simple steps typical for OTC trading:
Quote request
The buyer or seller contacts an OTC desk to request a price for a specific amount of cryptocurrency.
Price negotiation
Both parties agree on a rate, checking multiple sources to choose the best deal.
Trade confirmation
Both sides confirm the trade details. Some desks may require a deposit before finalizing the deal.
Fund transfer
The buyer sends fiat or crypto, and the seller transfers the agreed cryptocurrency.
Settlement and completion
Once funds are received, the trade is settled. OTC desks ensure secure and fast transactions.
Benefits of OTC
The strong sides of exchanging crypto assets through OTC desks cannot be overstated. Here are the most common:
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Privacy and anonymity
OTC trading keeps transactions private. Without a public order book, large trades remain hidden, protecting investors and businesses from front-running and market manipulation.
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Reduced market impact
Large orders on exchanges can cause price slippage. OTC trading prevents this by managing trades off-market. Buyers and sellers receive stable rates without sudden price swings.
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Larger trade volumes
Institutions and businesses often trade millions in crypto. Exchanges may not have the liquidity to handle such large transactions. OTC desks source liquidity from multiple providers, ensuring smooth trades.
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Better price execution
OTC trading allows buyers and sellers to negotiate prices directly. It often results in better rates.
Risks and Challenges of OTC Crypto Trading
However, there are some challenges OTC trading may possess:
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Counterparty risk
OTC trading happens directly between two parties, meaning trust is essential. Without an exchange acting as an intermediary, there’s a risk that one party may fail to deliver funds or crypto.
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Regulatory and compliance issues
Crypto regulations vary worldwide. Countries like the U.S. enforce strict KYC (Know Your Customer) and AML (Anti-Money Laundering) procedures for crypto trades, while others, like the UAE, have clearer regulations to promote institutional adoption. Regulatory uncertainty can impact OTC trading.
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Liquidity risks
Large trades require deep liquidity, which OTC markets may not always have. If liquidity is low, trades may be delayed or executed at unfavorable prices.
Is It Worth Using OTC in 2025?
Definitely! OTC trading offers significant benefits for large crypto traders, including privacy, liquidity, and better pricing. As the crypto market matures, institutions and businesses continue to rely on OTC trading to move large amounts of cryptocurrency smoothly and securely.
When engaging in OTC trading, due diligence is crucial. Traders must choose trusted platforms, stay informed about regulations, and take precautions to avoid fraud. For those looking to execute large trades privately and with greater control over pricing, OTC trading remains a valuable option. It’s possible to check a comprehensive solution here to benefit OTC trading.
