What is OTC Trading in Cryptocurrencies and How to Pick an OTC desk?

OTC trading in crypto means that you trade privately as opposed to open-market operations on an exchange. OTC transactions are used by many market participants who need to transact in large blocks, value privacy and want to avoid counterparty risk. Usually, such providers set the minimum trade amount of $100,000 – $1 million. In this guide, we’ll talk about what is OTC overall, how cryptocurrency over-the-counter desks work, what types exist and how to pick the best one

What’s the Meaning of OTC in Crypto?

OTC stands for “over the counter”, and means that the trade runs between the two parties to the trade in the manual manner. In some cases, the over-the-counter transactions might include the counterparties interacting directly with each other, either using the escrow or without any guarantees at all. But, in the majority of cases, the maturing crypto markets see such transactions running via crypto desks (more on desks below).

In crypto, OTC trading has been growing steadily as institutional investors are starting to diversify into crypto. The majority of transactions relate to the top coins, but a wider range of coins is constantly being added to the lists of available cryptocurrencies with the over-the-counter companies. In addition, the teams with such providers are always ready to deliver customized offerings with their focus on specific needs from high-value clients, including institutional investors, HNWIs, hedge funds and other liquidity aggregators like exchanges and dark pools.

To understand the differences between OTC trades and standard operations on exchanges, we need to take a high-level look on the ways to acquire cryptocurrencies. 

3 Ways to Buy/Sell Cryptocurrencies

1. Using credit and debit cards. Retail investors usually pick this method, but it’s fraught with various problems and limitations. Banks still frown upon any transactions relating to crypto, which might result in transactions being blocked and bank accounts suspended. Another major pitfall is inability to easily sell crypto holdings and withdraw funds to credit cards, which is usually a red flag with banks.
2. Bank transfers. Akin to the first method, the bank transfers might need to go through unnecessarily onerous checks by internal teams and clear within 3-5 business days. Some users might conceal the purpose of the funds use, which is highly inadvisable and may result in dire consequences. 
3. OTC trading. When dealing directly with your trusted counterparty like Cryptoprocessing, you can be sure that no red flags will activate in the bank. The duly licensed and reputable OTC market makers assure that you are equipped with the needed reporting and your transactions are never in threat of the scammy attacks, like the ones you might experience at platforms like LocalBitcoins.

Now that we’ve discussed the 3 routes you can use to buy and sell cryptocurrencies, we’ll look at the major benefits that OTC providers bring to the table.

What Are the Advantages of OTC Trades in Crypto? 

OTC trading is much better than using cards/bank transfers and interacting with crypto exchanges. Here are the main benefits that investors enjoy when dealing via such providers:

• Slippage reduction. Slippage occurs when the trade originator isn’t able to fulfill the order in full at the initially specified price. Whenever a buy/sell order takes out a large number of the opposing orders that have been queued up in the exchange’s order book, the prices inevitably slip up or down. It’s an open secret that the majority of exchanges suffer from a pretty thin liquidity available for non-major pairs. OTC platforms help customers avoid such problems as their traders either seek for the matching orders throughout their private network or act as the counterparty on their own. 
• Fees reduction. Over-the-counter platforms usually charge much lower fees than their open-market analogues as the order amounts are much higher. Trading a 1-million-dollar block would beat up a pretty high fee when operating at a regular exchange. 
• Confidential transactions. Dealing via such liquidity providers allows the parties to keep a low profile and avoid publicizing information about their accumulation/divestment strategies.
• Protection against scams. OTCs always make sure that they fully comply with all applicable regulations, provided that they are duly licensed and regulated like Cryptoprocessing. They treasure their clients and make all efforts to minimize the discomfort and problems for their users. Any scammy schemes or misusing their customers’ funds is unheard of as they would stand to lose much more than they’d gain in any such event. 

Due to these benefits, the Trading Desks are steadily growing their volumes and appeal to medium- and large-scale investors. But picking a good OTC trading market requires certain efforts and knowledge of the pertinent details. Let’s look into that process next.

What Is an OTC Desk in Crypto Trading? 

Over-the-counter desk employs professional traders who find matching opposing counterparties or provide the company’s own liquidity for effective trade fulfillment. Full licensing and compliance with regulations are a must-have. Gray-market partners are a no-go.

In broad strokes, all such liquidity providers can be divided into the two types: 

Type 1: Principle Crypto OTC Desks

Such liquidity providers use their own funds in order to first purchase the assets based on the instructions from customers and then procure those assets to the customer in return for the payment from them. Such trading companies assume the full market risk as the prices might move in the opposite direction, resulting in the losses incurred by the desk. Using the massive liquidity pools at their disposal, the OTCs act as the counterparty, eliminating the need to look for and trade with the opposing parties. 

These are the best OTC platforms. They usually offer the high-amount trading options and serve the top clients on the market. Cryptoprocessing operates in this manner, fully covering the market risk and allowing customers to easily purchase one of the top-50 assets at the specified prices. 

Type 2: Agency Crypto OTC Desks

The agency liquidity providers seek to match the two trading counterparties. They activate their diverse and extensive networks of trading partners to obtain the most favorable quotes.

The coins’ prices such OTCs trade might diverge from the originally specified levels, which will require updates to the standing orders from the client. As a result, clients might find collaborating with such agency liquidity providers more onerous and time-consuming. The benefit is lower minimum limits that are feasible for a wider range of potential users. 

Equipped with this information about the major types of over-the-counter systems, we can take a deeper look into the underlying processes that they run.

How Do Crypto OTC Companies Work? 

Below, we present the standard procedure for the Principle Providers with the Agency analogues basically operating in a very similar manner. 

1. Reach out to providers. For instance, you can fill out the request form above and reach out to Cryptoprocessing’s team. 
2. Complete the KYC check. Once you pick a provider you want to work with (see below on how to pick a good desk), you can go through the KYC check. The information will be kept confidential, and it’s used exclusively to prevent any money laundering and similar nefarious activities.
3. Create the order. Connect with your personal trading manager and place an order. Professional over-the-counter teams always have experienced traders that are able to answer any of your questions and assist throughout the process.
4. Complete the trade. Once the order has been fulfilled, your trader will furnish the resulting assets to the wallets you’ve specified. Upon the order execution, a spread will be taken out by such a trading company, forming their profit margin.

Over-the-counter systems are easy to deal with. The experienced traders and managers always go the extra mile to deliver a convenient and hassle-free experience for their VIP clients.

How to Pick the Best Crypto Over-The-Counter Platform?

Before choosing an OTC desk, it’s highly recommended to run an in-depth background check on candidate companies. Make an effort to get a scoop on the following data points: 

• Registration jurisdiction. Each specific jurisdiction features its own set of regulations and requirements to such platforms and similar liquidity providers. Currently, the EU boasts the most effective and innovative regulations that seek to assure that potential users will enjoy the high quality of the offered services. Such EU-registered companies as Cryptoprocessing enjoy the ecosystem effect and trust from counterparties from around the globe.
• Supported pairs. Providers like Binance offer only crypto-to-crypto pairs. This can be a deal-breaker for those institutional investors who look for quick access to both crypto-to-crypto and fiat-to-crypto pairs.
• Reputation and track record. Invest time and effort into learning more about the OTC you wish to work with. This will pay off handsomely as partnering up with a gray-market company might easily end up in a calamity.
• Type of liquidity provider. As we’ve talked above, traders are advised to find out whether the OTC is a Principle or Agency trading market. The Principal companies offer faster executions and overall better servicing levels.

With this data on file, your team will be able to easily pick the best OTC market maker for long-term and sustainable trading operations. 

Main Takeaways

OTC desks flourish in cryptocurrency markets, borrowing from their stock-market OTC predecessors. One-on-one Bitcoin/altcoin trading is performed either with the help of the company’s own liquidity or by matching the two sides of the trade.

Among the main benefits are reduced slippage and confidentiality of the transactions. Institutional investors are seeking the high-quality services provided by top-tier trading markets like Cryptoprocessing that are fully licensed and regulated in the forward-looking jurisdictions. Researching your future partner and running an in-depth back-ground check will pay off in the long term.

The OTC trading services are almost free or feature the minimal 1% fees. Such fees mechanics ensure the effective alignment of the interests of clients and OTC companies, delivering the seamless customer experience to users.

Institutional investors, hedge funds and investment teams would win by accumulating their AUMs with a single provider like Cryptoprocessing, where the minimum $1-million trade amount is matched with the 24/7 traders team availability, wide range of supported coins and the flat 1% fees structure for all transactions.