What Is OTC Trading?

In the world of virtual assets, crypto exchanges are considered to be the predominant type available for trading these days. Most users express their preference for such platforms because of simplicity. However, there's another alternative – OTC. Let's see what it is and what advantages it has.

Definition

The abbreviation " OTC " stands for over-the-counter. The essence of off-exchange trading is that the seller and the buyer cooperate directly, unsupervised by the exchange. 

It is worth noting that OTC platforms appeared a long time ago, however, they attracted attention only in 2013-2014. This is partly due to the high entry threshold. We are talking about thousands of dollars. Therefore, for a long time, this type of trading was associated with whales.

But things are different now. OTC is becoming increasingly popular among regular players. Many traders turn to user-to-user platforms in order to reduce costs and increase efficiency. Institutional investors gave them a powerful additional impetus to development. The demand for crypto and the requirements for liquidity is growing, and the usual exchanges can't keep up with it.

In OTC trading, participants make one large transaction (the price is fixed). This allows you to avoid losses due to sharp swings in price. This is perhaps the main difference between these platforms and traditional exchanges. Moreover, transactions are much faster and are not recorded in the order book. This ensures confidentiality.

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Advantages:

  • Guarantees

The usual exchanges, as a rule of thumb, act as intermediaries. They are not financially responsible in the event of an incident. OTC platforms are quite another matter. They must guarantee the safety of their customers. The KYC procedure is mandatory for all participants.

  • The Most Competitive Exchange Rate

The participants of the OTC market have the opportunity to agree upon a price.  Selling digital currencies at a rate of 1% higher than on exchanges appears to be common.

  • High Liquidity

Many people are familiar with the situation when your sell order involving large amounts is “waiting in the wings " for weeks or even months. It won't happen to OTC. Thanks to the limited set of cryptocurrencies, every asset has a high level of liquidity.

Bottom Line

Since Equite cares greatly for its users, we’ll give you some advance notice: there is always an element of risk. No one can guarantee you fairness and security. You still have a chance to get into a bad deal. In addition, you don't have much of a choice on such platforms - only popular assets are traded. Nevertheless, OTC platforms can be a great alternative to centralized exchanges when it comes to the need to sell a large number of coins.

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