Despite the unregulated nature of cryptocurrencies that facilitate direct transactions between parties discreetly and securely, most crypto transactions involve a crypto exchange for routing transactions. The crypto exchange facilitates the transactions by charging some transaction fees and commissions. Generally, it is the most popular method of crypto transactions as it allows exchanging cryptos for some fiat currency or any chosen cryptocurrency. The exchanges can handle all types of crypto transactions, from small to big trades. However, the Over the Counter (OTC) trading desks also facilitate crypto transactions but operate differently than the crypto exchanges. OTC is ideal for huge trades, and most High Net-worth Individuals (HNIs) who invest in cryptocurrencies prefer to use the OTC desks instead of the crypto exchange. As more and wealthier individuals move towards cryptos, the interest in OTC markets is growing fast.
What are OTC markets?
As the name implies, the concept of Over the Counter markets is identical to buying any commodity across the counter in which the buyer and seller interact directly. No third-party intervention is necessary to complete the transaction. It is an open, decentralized marketplace for financial trading in stocks, currencies, commodities, or other instruments directly between two parties without involving any third party, exchange, or broker. As these are direct transactions, they can take place anytime, even beyond regular business hours, depending on the parties’ convenience. The OTC market is a virtual marketplace where trading happens electronically via voice without any physical location. Despite being an open marketplace that anyone can access, digital transactions are highly secure and confidential. As it happens with crypto transactions, the transacting parties remain anonymous while maintaining high liquidity.
Why do wealthy people prefer OTC?
The no holds barred transactions are especially attractive for high-volume transactions where parties prefer speedy but discreet transactions with instant liquidity. To combat the high volatility of cryptocurrencies and minimize losses with instant liquidity of funds, the Over the Counter market is ideal for HNIs and institutional who are putting in vast amounts of money in the crypto market. The OTC method reduces transaction risks and offers a price guarantee against market impact or price deterioration. As the names of the transacting parties are unknown, it lowers counterparty risks. To perform large trades anonymously and get a reliable platform to undertake speedy transactions. The fast transactions allow wealthy individuals to reap the benefits of the high crypto prices instantly, as they can trade at any hour of the day. Even at midnight, they can complete the transactions and book profits instantly before the crypto value changes in a flash.
Making a difference between a mediocre trade and a profitable trade
Besides the cryptocurrency price, many other factors related to the mode of the transaction can affect the transaction value and result in lower gains than expected. Placing very high-value trade orders to the tune of $50,000 through a trader in a traditional exchange is fraught with the risk of slippage loss because of the enormous order size. Ultimately, it can adversely affect the exchange rates and belie the expectations of returns. On the other hand, placing such orders through an OTC desk ensures guaranteed liquidity, high security of transactions in line with the industry best practice, single price execution with price locking regardless of the order size, and pre-settlement soon on completion of a trade.
OTC trading desks conduct high business
Since there is no limit to trading on OTC desks, it is especially attractive to HNIs and institutional investors investing in a big way in cryptocurrencies. The freedom of undertaking hassle-free transactions with confidentiality and high security meets the expectations of big investors who want speedy transactions to multiply their profits. Most importantly, crypto investors using OTC have complete control and ownership of their assets while the transaction occurs. Trades happen in real-time by using the wallets of the parties involved. Investors feel confident to deal in cryptocurrencies in the same way they use fiat currencies kept in wallets.
OTC markets maintain the complete anonymity of the parties involved in the transactions, eliminating the forward and counterparty risks.
