Cryptocurrency is bought and sold in different ways.
Trades are commonly made on public exchanges like BTC Markets. Others are settled ‘over-the-counter’ (OTC).
OTC refers to trading privately between two parties. Trades are made outside of public exchanges. OTC is an effective way to save money on large trades.
What is OTC and how does it differ from exchange trading?
OTC trades are negotiated deals made between two private parties. Stocks, currencies, and other assets, like cryptocurrency, can be bought and sold OTC.
This differs from exchange trading which occurs in marketplaces hosted by exchanges. For example, the Australian Stock Exchange (ASX) hosts stock markets. Similarly, BTC Markets hosts trades between digital assets, including cryptocurrencies, and Australian dollars.
These markets consist of digital order books. Buy and sell orders go ‘onto the books’ when created. Orders are taken ‘off the books’ when matched with other trades.
OTC contrasts this. There is no order book. Prices are privately negotiated and agreed upon by two parties.
One benefit of OTC is fixed rates. This reduces the risk of exposure to price slippage. Slippage refers to prices changing while orders are being placed. This results in entering or exiting a trade at an undesired price.
Slippage commonly occurs in volatile markets.
How does OTC save money on large cryptocurrency trades?
OTC trades can result in a lower average purchase price. This is especially beneficial for high-volume trades. Large trades executed on exchanges can have the opposite outcome. This has to do with order books.
Say an individual, Mary, wants to buy 5 Bitcoin at market value. Bitcoin is trading at AU$15,000 per coin. She looks to buy on an exchange.
The order book shows 1 Bitcoin is available at AU$15,000 – not enough to fulfil Mary’s 5 Bitcoin trade. However, more volume is available. Other sell orders sit at higher prices. Mary’s trade is settled by taking from these orders. She now owns 5 Bitcoin but has paid more than intended.
What if Mary made the same trade OTC? She engages with a dealer to buy 5 Bitcoin. Both parties agree on a deal. Mary buys 5 Bitcoin at $15,000 per coin. The fixed rate results in cost savings on her purchase.
Who supports OTC trade for cryptocurrency?
Our OTC desk is for discrete, high-volume trades.
We facilitate your deal directly, and you gain access to our global network of liquidity providers.
The OTC service is open to individuals, institutions, and Self Managed Super Fund (SMSF) clients, for orders worth AU$100,000 or more.
Visit our OTC page to find out more information about over-the-counter trading.