What is OTC trading? Advantages and disadvantages

OTC (Over-the-Counter) trading is a method of buying and selling assets directly between two parties without using a centralized exchange. In the cryptocurrency market, OTC trading is often used for large transactions, allowing traders to execute deals without significantly affecting market prices.


How does OTC trading work?

Unlike traditional exchange-based trading, where buyers and sellers place orders in a public order book, OTC trading involves direct negotiations between parties. These transactions are typically facilitated by OTC desks or brokers who connect buyers and sellers, ensuring a smooth and secure trade process.


Advantages of OTC trading

No market impact – large transactions on exchanges can cause price fluctuations. OTC trading allows traders to execute large deals without affecting market prices

Higher liquidity – large investors can buy or sell significant amounts of cryptocurrency without worrying about order book limitations

Greater privacy – OTC transactions are not recorded in public order books, offering confidentiality for both buyers and sellers

Flexibility in trade terms – OTC trades allow for customized agreements regarding settlement methods, timing, and pricing


Disadvantages of OTC trading

Counterparty risk – since OTC trades are conducted directly between parties, traders must rely on the trustworthiness of their counterparties. Working with reputable OTC desks, like Manimama Exchange, can help mitigate this risk

Higher fees and spreads – brokers and OTC desks often charge fees for their services, and bid-ask spreads may be wider compared to traditional exchange trading

Limited asset availability – not all cryptocurrencies are available for OTC trading, and some less liquid assets may be difficult to trade


Who uses OTC trading?

🔹 Institutional investors – hedge funds, financial institutions, and large-scale investors use OTC trading for bulk transactions

🔹 High-net-worth individuals – investors who want to buy or sell large amounts of cryptocurrency without causing price volatility

🔹 Companies and businesses – enterprises looking to conduct significant crypto transactions for treasury management or operational needs


Conclusion

OTC trading is an essential part of the cryptocurrency market, providing liquidity, privacy, and flexibility for large-scale traders. While it offers several advantages, traders must carefully choose reliable platforms and intermediaries, such as Manimama Exchange, to minimize risks and maximize the benefits of OTC transactions.