Crypto Glossary

Posted on September 13, 2021 in
Glossary

Over the Counter (OTC)

OTC, which stands for Over-the-Counter, is a method of trading stocks, bonds, derivatives, and currencies in both the cryptocurrency and fiat markets that is becoming increasingly popular. Currency exchange trading typically includes three parties: buyers, sellers, and the exchange itself. Buyers set the bids and sellers set the requests (which acts as the market maker). OTC trading eliminates the need for an intermediary (the exchange), allowing buyers and sellers to communicate directly with one another.

What is OTC in cryptocurrency trading?

Over-the-counter (OTC) markets have seen a significant increase in cryptocurrency trading volume over the past year, as brokers compete for the attention of institutional investors who have begun to enter the cryptocurrency market. The OTC Bitcoin market functions like that of the global financial OTC markets, in most respects. Even major cryptocurrency exchanges have started their own OTC trading desks to take advantage of the growing demand from both retail and institutional investors in the cryptocurrency space.

It makes little difference how these parties interact since, in contrast to stock exchanges, over-the-counter markets are less formal in structure and do not have a physical presence. Typically, buyers and sellers will connect through chat groups, phone calls, forums, and other means.

OTC: Growth opportunity for smaller companies

By stating the prices at which they desire to buy/sell security, money, or financial product, a person seeking a trade (either buyer or seller) serves as the market-maker in the transaction. They can maintain their anonymity since they are not required to reveal the specifics of the transaction to the public. 

When a firm is too tiny to be listed on a formal exchange, it is common for smaller companies to sell their shares on the over-the-counter (OTC) market. However, just because tiny businesses use the over-the-counter market does not imply that the market itself is small; in fact, the reverse is true.

Why OTC markets are ideal for crypto traders?

Liquidity is crucial while dealing in OTC marketplaces. The limited liquidity on cryptocurrency exchanges is the norm. By reducing the danger of price slippage, purchasing cryptocurrencies through OTC marketplaces minimizes the risk. However, it is common for exchanges to fail when handling big orders. As a result, they divide the transaction into smaller chunks to make it feasible. As a result, buying a big quantity of cryptocurrencies at a set price is challenging for purchasers. 

The freedom of anonymity is of interest to users. It is possible to acquire an extremely large quantity of coins without significantly affecting the price. Also, exchange desks allow only direct trades, with limits on certain trades exchanges ban. 

Many lesser-known cryptocurrencies are allowed to be bought and sold on most major exchanges. As long as the unknown coins are bought privately via OTC (over-the-counter) marketplaces, investors can get huge quantities of them.

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