Over-the-counter (OTC) cryptocurrency trading is a service available to high-volume traders that takes place away from digital currency exchanges. The phrase “over-the-counter”, in this context, can be used to refer to stocks that trade via a dealer network as opposed to on a centralised exchange. That is to say, this type of trading generally takes place away from a more formal type of exchange.
If you’re a trader who wants to purchase a large amount of cryptocurrency, buying coins or tokens through a traditional exchange could expose you to several problems. Slippage can greatly increase the cost, and risks of hacking and theft that come with trading on an ordinary exchange, pushing these traders towards the OTC option.
OTC trades are often favoured by large-scale traders, such as private wealth managers or high-net-worth individuals. This type of trading is done directly between two parties, without the supervision of an exchange.
The snag, as you might be aware of, is that despite seeing a specific exchange rate, the trade is actually restricted by the liquidity on the market: how much of the stock, commodity or Bitcoin you can buy or dispose of at any given time.
It's one thing to see the exchange rate of Bitcoin when there are only a few satoshis available at that price, and quite another when you want to buy or sell a large amount. Bitcoin is reaching a larger and larger audience each day and more people are recognising Bitcoin as an alternative asset class, worthy of substantial investment.
What are some of the other benefits of OTC trading?
- Quicker trading times
- Institutional investors and funds can buy Bitcoin in larger volumes
- Better prices
- To avoid low trading limits
- To avoid hacking risks
- A faster settlement of large trades and quicker access to funds
We tested OTC transactions for a period of time, and have decided not to add it as a full feature at this time. If you want to buy a large (or small) amount of Bitcoin, we suggest using the Luno Exchange. Have you ever traded through an OTC platform? Let us know about your experience on Twitter.