You can trade cryptocurrency not only on exchanges. Traders can conduct transactions directly, bypassing large platforms. This is called OTC (Over-the-Counter) trading. This means that the seller and the buyer conclude a deal directly with each other, bypassing the exchange. Cryptocurrency is no exception. OTC markets are also used to buy stocks, bonds, oil, gold and other assets, writes RBC Crypto.
Most of the supply on OTC cryptocurrency platforms is provided by miners, Nikita Zuborev, a senior analyst at Bestchange.ru, explained.
When to go outside the exchanges
OTC trading is usually used when conducting large transactions, for them this is the best option, noted Maria Stankevich, Development Director of the EXMO cryptocurrency exchange. This method avoids price slippage: while the client buys limit orders in whole blocks, the price can change dramatically. OTC trading can also help to avoid complexities with order execution on different exchanges in order to satisfy the demand for high volume, the expert explained.
Such transactions are not recorded in the order book of the site and are not displayed publicly, which allows for greater confidentiality, says Maria Stankevich. According to her, this method is ideal for those who need to exchange large amounts of fiat for cryptocurrency or vice versa.
Differences from transactions on exchanges
The main difference between OTC transactions and transactions on stock exchanges for a trader is the unique conditions of transactions, noted Nikita Zuborev. He explained that on the exchange, the price is determined by the balance of supply and demand, and outside of it, participants can agree on any volumes and prices, sometimes with a significant discount or premium to the exchange price. Also, according to the analyst, OTC trading in most cases is simpler and does not require identity verification, although it all depends on the specific site.
A trader must understand that when trading outside the exchanges, he accepts a high risk, since during such transactions the liability of the parties is not regulated in any way, explained Artem Deev, head of the analytical department at AMarkets.
How to start conducting OTC trades
According to Artem Deev, the most popular methods of OTC trading in cryptocurrencies are the conclusion of transactions through professional intermediary brokers, through specialized chats and purchases during the token sale. To avoid becoming a victim of fraudsters, you need to engage in over-the-counter trading through trusted resources, the analyst advises.“For this, transactions must be insignificant at first, in order to work out the entire algorithm and understand how the participants of the other side comply with the rules of the game,” noted Artem Deev.
The head of the analytical department of AMarkets warned that even when using proven sites there is no guarantee that such trades will be successful on an ongoing basis, so OTC trading is not suitable for beginners.