OTC (Over-the-Counter) trading is a non-regulated manner in which financial instruments are traded directly between two parties — often two traders, or a retail trader and a provider. Many OTC trades are handled via a dealer network.
This term refers to over-the-counter trade, carried out directly between customers and marketers. In this case, a seller and a buyer enter into a transaction directly with each other, usually with third-parties' assistance. For a long time OTC trading was an important tool of financial market, but in 2018 it found wide application on cryptocurrency market.
What are the advantages of OTC trading?
Many market participants choose OTC trading for a number of reasons, including price stability, speed of execution, security and confidentiality. It is a transparent system of trading with no problem of bad or short deliveries. Information flows are free and more direct from market makers to customers since there is close contact between them. OTC trading platforms are particularly favorable for smaller and less liquid companies as they are not qualified for listing on a standard exchange.
What are the differences between OTC trading and stock trading?
On exchanges, for carrying out a large transaction, you usually need to make a lot of small transactions, each with a different exchange rate. Liquidity and volatility at that time determine the number of necessary transfers, as well as the range of rates. Fluctuations in the price, observing on the cryptocurrency market, can significantly increase users's expenses.
During OTC trading, customers are limited to one large transaction, which allows to increase efficiency and avoid difficulties with execution on different exchanges. In addition, the transaction is not recorded in the site order book and is not displayed by default, which allows to achieve a higher level of confidentiality.
What is the link between OTC trading and ICO (Token Sale)?
A significant part of the cryptocurrency funds was raised through ICOs, launched in 2017 and early 2018. For companies in the post-ICO phase, management of the collected funds is a key challenge, and OTC trading services offer individual solutions.
What is OTC market forecasts?
OTC-trading for a long time remained the lot of big players, but a number of factors influenced the recent growth of interest and wider adoption of OTC in the industry. The main crypto-exchanges are known for their huge lists of unverified users, therefore OTC-trading services are beginning to actively occupy a niche of "middle" market players with orders of $ 100 thousand and more.
OTC-trading becomes especially important in the face of complexities associated with depositing and withdrawal fiat money on/from exchange accounts and constantly changing regulatory and legal bases.
What impact does regulation have on OTC trading?
Regulation, safety recommendations and other requirements will increase competitiveness of OTC trading platforms on the investment market. Growing demand at the institutional level requires deeper and constant liquidity. Cryptocurrency exchanges cannot meet these liquidity requirements, which gives an additional impetus to the expansion of the OTC trading market.
How to select an OTC trading platform?
The best OTC providers are well-adapted to the conditions of developing and uncertain markets, and offer their customers consistently competitive services and liquidity.
A key factor in choosing an OTC provider should be its ability to conduct transactions in fast-growing market driven by high volatility, illiquidity and algorithmic trading prowess.