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.