If you are a crypto trader looking to buy a significant quantity of cryptocurrencies, buying coins or tokens on a regular exchange comes with several drawbacks. Slippage can significantly increase the cost per trade, and you will have to contend with the hazards of fraud and hackers that come with operating on a traditional exchange when dealing with high volume.
Over-the-counter (OTC) trading comes into play here. OTC trading is a high-volume trading facility exclusively offered to a few people or groups. Find out more in this guide about whether OTC trading is the appropriate option for you and other nuances of selecting an OTC solution.
What is Over-The-Counter Trading?
OTC trading refers to crypto transactions that occur outside of digital currency exchanges. Private fund management, hedge funds, and high-net-worth investors frequently execute OTC trades, which most large-scale traders prefer. A person can conduct OTC transactions in a variety of methods, including the ones listed below:
- Using Chat Rooms: The first substantial OTC bitcoin trade did take place in the #bitcoin-otc IRC channel. This trade ecosystem is hosted on several IRC channels and enables traders to conduct peer-to-peer exchanges.
- Through brokers: Agents specialising in large volume transactions regularly handle OTC trades. These services provide a customised solution to assist high-volume traders in executing large block deals and avoiding slippage by gaining access to cash through liquidity providers who hold vast amounts of cryptocurrencies.
Why Would Anyone Choose OTC Trading Over a Traditional Exchange?
Large-volume traders may pursue going OTC over a traditional exchange for a variety of reasons:
- No Low Trading Limits: The max number a user can trade each day and the total sum tone can transfer from an account in 24 hours are usually set by traditional exchanges. These restrictions can vary depending on payment systems, secure authentication level, and how long a client has traded on the system. They could be inadequate to cater to large-scale dealers’ requirements in many circumstances.
- Improved Returns: The traditional crypto market is still in its early stages, and exchange liquidity will not always be capable of managing large trades. As a result, executing a large trade on a standard exchange could cause slippage, which is when the price of a cryptocurrency moves in an unexpected direction before your transaction is finished.
- Use a reputable broker: There have been countless instances of traditional crypto exchanges being hunted by hackers and falling prey to them too regularly. You can prevent this risk by conducting OTC trades through a reputable broker.
- Trading Times are Shorter: Large bids on a standard exchange can take days to process based on available liquidity. OTC trading can ensure quick processing times.
How do Over-The-Counter Transactions Function?
The first stage in each OTC transaction is to identify a trading counterpart. It can be done in a chat room, but it’s more frequent with an OTC brokering platform.
Negotiating the conditions of the trade is the next phase. If you want to acquire Ether, for example, you might want to include the following information:
- The quantity of Ether you’d like to purchase
- Your preferred rate
- When do you want the exchange to occur?
The vendor will then respond with a sale price frequently indicated as a percentage above the current available price on a prominent exchange. After a negotiated rate, the purchaser sends the vendor a bank transfer to pay the sales price, and the seller provides the agreed-upon quantity of cryptocurrency.
Steps to an OTC Trade:
Buying considerable sums of cryptocurrency is a simple operation one can handle on the platforms like Swyftx and associated OTC dealers.
- Step 1: Schedule a Consultation- Visit the platform’s crypto OTC page to schedule an appointment with one of their OTC dealers and find out more They will require you to fill up a form with your details. After visiting the OTC page, you can then schedule a meeting.
- Step 2: Contact an OTC Dealer- To discuss your financial plans, speak with a member of the platform’s OTC team. The staff would help OTC clients from start to finish, including after the order has been fulfilled.
- Step 3: Place the Bid- The platform will execute your bid, whether on the crypto exchange or an OTC order, once your investment preferences are fully realised.
OTC orders mitigate slippage induced by price fluctuations and inadequate liquidity. The OTC dealers on a reputable platform are well-versed in the marketplace and can aid you with large-volume trades. You should speak with a good quality accounts team if you intend to execute a high-volume trade.