OTC Over-The-Counter Trading
Whether you are a new investor or a seasoned trader, there are a few things you need to know about OTC trading in cryptocurrency. The most common is the lit pool, which functions much like a traditional exchange. With this type of trading, investors can view bids and offers on the network and register their offers on the order book. Dark pools, on the other hand, are entirely closed markets. The order books and information are only visible to the client. This gives users anonymity and is often preferred by institutional investors.
Another drawback to retail exchanges is their limited liquidity. A recent CoinMarketCap report showed that bitcoin and ethereum accounted for $72 billion in daily trade volume on average. These two platforms have very limited liquidity, which can lead to slippage in the prices of these assets. Moreover, as these tokenised assets are linked to physical properties, the liquidity of each platform is limited.
OTC trading works similarly to traditional trading, but without the risk of hacking. The buyer sends a bank transfer to the seller, and the seller sends cryptocurrency in exchange. While both parties are required to satisfy legal requirements, OTC trading is not subject to public reporting and auditing. But the pros outweigh the cons. This method allows investors to deal with larger amounts of cryptocurrency in the privacy of their own home.
Decentralized OTC crypto exchange
OTC desks also adhere to similar KYC requirements as traditional exchanges, but they are much less regulated. Most regions are tightening regulations, with Asia and North America being the most heavily regulated. The EU has also begun to regulate the sector, but the proposed rules would flag transactions over a thousand euros from unhosted wallets, which are wallets that are not hosted by a central company.
What is Cryptocurrency OTC Over-The-Counter Trading?
As the market has grown and institutional investors have flooded the market, over-the-counter trading has become the most popular method of anonymous cryptocurrency trading. Like global financial OTC markets, the OTC Bitcoin market is booming. While many new exchanges have launched OTC trading desks, traditional crypto exchanges are also making use of the increased demand from institutional investors and retail investors.
Traditional cryptocurrency markets are not fully developed. As such, the market often lacks liquidity. Large trades could affect the price before completing, and smaller orders could spread the volatility. OTC trading is a way to access one price for a single buy order. This type of trading allows traders to access a larger market than they would in traditional markets. With an OTC desk, they can avoid these issues.
OTC desks conduct transactions over the counter with a counterparty. They act as dealers for buyers and sellers and are often used when a centralized exchange cannot perform a transaction. In addition to this, OTC desks can limit slippage and reduce market impact. They may also offer a lock-in price for those trading large amounts of cryptocurrency. This type of trading is growing exponentially, with billions of dollars changing hands each year.