OTC (short for “over-the-counter”) is a style of trading that’s not done via an exchange. When you hear stories of institutions like MicroStrategy and Tesla buying billions of dollars worth of Bitcoin, they are not getting these coins traditionally through an exchange. Instead, they are purchasing them via OTC desks. CoinSmart users can avail OTC trading services through CoinSmart Premium. Before we get into that, let’s understand what OTC trading means.
How does crypto OTC work?
OTC markets are electronic networks that directly connect brokers with dealers. The dealers are market-makers that offer these coins at a price they determined. OTC trades “are carried out in a secure environment outside of regular exchanges and aren’t subject to as many regulations as retail markets. Apart from crypto, OTC markets are used for trading the following:
- Traditional stocks and bonds. OTC markets are the default exchange for corporate bonds.
- Derivatives contracts, as agreed between the broker and the dealer. These derivatives could be options, forwards, futures, etc.
- Depositary receipts and bank certificates.
- Foreign currencies (Forex).
Why use OTC trading in crypto?
Over the last few years, the idea of “institutional trading” has become extremely popular. Institutions, hedge funds, and wealth managers are all looking to get their slice of the crypto pie. However, these folks require a platform wherein they can easily trade a large amount of crypto.
Of course, they can use an exchange to trade their coins like everyone else. However, cryptocurrencies are incredibly volatile, and exchanges don’t have that much liquidity – especially if the coin in question is not one of the big two (BTC and ETH). This could lead to a situation called “slippage.” Slippage is the difference between the expected price of a trade and the price at which the trade is executed.
Slippage is usually very small, around 0.05% and 0.10%. Usually, it doesn’t make that much of a difference, but it’s a different story when dealing with large orders. For example, a 0.10% slippage on a $50,000 order could lead to losses of $50.
OTC trading allows you to purchase your order all at once from a single dealer. This simple one-time purchase allows you to complete your trade without slippage.
Crypto OTC vs Exchange
Let’s look at the differences between OTC and Exchange trading.
| OTC | Exchange | |
| What is it? | A dealer/broker market where these two entities can directly interact with each other. | A regulated market where buyers and sellers interact under the supervision of the exchange. |
| Users | Institutions/whales | Retail, everyday users |
| Trading hours | 24X7 | 24X7 |
| Market makers | Dealer | Exchange |
| Transparency | Low | High |
| Coins available | Unlisted coins may also be available. | Listed coins |
Pros and Cons of OTC trading
Pros
- No slippage: OTC trading is mainly used for high-volume trades. Making these trades on exchanges can cause major slippage (price variations due to sudden drops in liquidity). Slippage can significantly affect the asset price, which can be detrimental in high-volume trades.
- No trading limits: Due to various regulatory reasons, exchanges usually have purchase and withdrawal limits. OTC platforms allow you to circumvent these limitations.
- Faster trades: Directly dealing with a dealer will enable you to finish your trades much faster.
Cons
The biggest con of OTC trading is that you need to trust the dealer completely. That’s why you must find credible dealers before deciding to do an OTC trade.
CoinSmart Premium – The OTC platform for Canadians
With CoinSmart Premium, we provide customized Over-The-Counter (OTC) trading services for corporations and individuals looking to fill large orders. Of course, CoinSmart Premium is not just limited to institutes. Since CoinSmart is a completely compliant crypto trading platform, our retail users have a $30,000 CAD annual limit on crypto purchases (excluding BTC, ETH, BCH, and LTC). With CoinSmart Premium, you can circumvent this limit and make high-volume purchases.
Our CoinSmart premium users can benefit from the following:
- Highly Competitive Preferential Pricing
- Same Day Fund Settlement
- Expedited KYC/AML Verification
- Dedicated CS Premium Account Manager
- Personalized and Discreet
- Deeper Liquidity
Additionally, being a CoinSmart Premium user makes you one of our VIP users. So, not only will you receive exclusive market insights, but you will also benefit from our white glove services. Our team will work with you throughout the process and answer your doubts and build a long-term, mutually beneficial relationship.
Do you want to find out more? Click here, and let’s get you started.
