What is OTC (Over The Counter)? How does OTC market work?

    Dec 07, 2022

    OTC (Over The Counter) is a fairly common phrase in the crypto market, many investors choose to trade on the OTC market over conventional exchanges. OTC is a place to trade between users, or large institutional investors, especially whales. So what is OTC? What are the advantages and disadvantages of OTC trading? Let's find out with in this article.

    What is OTC trading?

    First, let's find out what is OTC in the crypto market.

    What is OTC

    OTC stands for Over The Counter. OTC is a fairly common term in the financial securities market to refer to stocks that have not been listed on the exchange. For the crypto market, the term OTC is used to describe private transactions. That is, these transactions are not publicly executed on regular exchanges and often do not have public orderbooks.

    It can be said that OTC is the preferred form of trading by many investors because it has a low impact on the market price. For whales, trading in the OTC market offers a lot of benefits. Because, in the case of whales buying a large amount of cryptocurrency, this transaction is likely to be negatively affected by the impact of price slippage. OTC is considered the more optimal solution in this case. It is estimated that currently more than half of all assets in the crypto market are carried through OTC exchanges. Besides, the OTC market has a trading volume 2 to 3 times larger than normal transactions.

    How does OTC trading work?

    After having an overview of what is OTC trading, let's explore how does OTC work.

    As mentioned above, in essence, the OTC market can be considered as a service that meets the privacy needs of users. In this market, users are divided into many levels from small individual investors to large institutions.

    For an individual level, transactions can be completely done with the words and reputation of the trading parties. At the institutional level, the volume and assets are much larger, the transactions are carried out in a more rigorous and complex manner. The parties will maintain a network of many cryptocurrency traders. Investors in the OTC market will regularly update the buying/selling situation, and when there is a suitable object, they will conduct the transaction.

    What are the advantages and disadvantages of trading in the OTC market?

    OTC Trading

    OTC has certain advantages that make it the choice of many people, besides conventional trading. However, the OTC market also has certain limitations. So what are the advantages and disadvantages of an OTC exchange?


    High anonymity

    OTC can be considered as an effective alternative to centralized exchanges. When participating in the OTC market, users do not need to provide any personal information. Instead, they can exchange information with each other through common forms such as email, chatbox, phone call, etc. Therefore, the two transaction parties will not be able to know the information of the person they are awake transaction.

    Not depend on intermediaries

    This can be seen as the biggest advantage of OTC trading. OTC completely eliminates dependence on intermediaries. Buyers and sellers will interact directly with each other without the control of any intermediaries. For this reason, OTC trading helps investors save a lot of time and costs.

    Improve market liquidity

    When investors participate in transactions in the crypto market, they can trade a large amount of assets without having to worry about slippage. This is the advantage of OTC that makes it the optimal choice for large investors or whales. Besides, OTC allows users to convert a large amount of assets into cash.


    What is OTC Market

    High level of risk

    OTC trading does not have the same transparency as in the regular market. Instead, it's done mostly by word of mouth, with no strings attached between buyer and seller, leading to a higher risk of fraud.

    Affected by fluctuations

    In fact, the amount of Bitcoin available in the market is very susceptible to change when there is a large volume of transactions. Besides, the price of a coin fluctuates constantly. Therefore, OTC in particular and other forms of trading in general will be very susceptible to market fluctuations.

    What is OTC’s role in crypto market?

    After understanding what is OTC, let’s explore the role of OTC market. Many investors choose to trade on the OTC market instead of popular exchanges like Binance, Huobi because of the privacy and high liquidity of OTC trading. For the normal market, there will be large price fluctuations when large volume transactions occur. However, this will be limited to OTC transactions, because transactions on this market are done between two parties, a buyer and a seller.

    OTC trading facilitates users' trades to be executed at the appropriate price they desire. Besides, OTC is a great solution for large investors and whales. As these investors are looking to own many of the powerhouses of the crypto market, experience trading with a high degree of anonymity, the advantages of OTC will be great options for them.

    Instructions for trading on the OTC market

    Hướng dẫn giao dịch OTC

    Normally, to perform OTC transactions, there will be 3 basic steps as follows:

    Step 1: Choose where to trade OTC

    In this step, you need to make sure that your OTC trading platform is safe and reputable. You can find information online or through referrals.

    Step 2: Decide on the terms of the agreement

    Once you have found a reputable OTC trading place, choose the cryptocurrency, quantity, time and price you want.

    Step 3: Negotiate the price

    The other party will set their own rates and you can negotiate the best price for both. When both parties agree on a price, they can execute the transaction.


    OTC trading

    Above is all the information about OTC trading in the crypto market that you need to know. Hopefully through this article, you have understood what is OTC, the advantages and disadvantages of the OTC market. If you have any questions, don't forget to send us a message to be promptly answered by the team.

    Disclaimer: This article provides information only on what is OTC, it is not investment advice.

    FAQs - What is OTC?

    Is the OTC market safe?

    For the average investor, the safe way to trade in the OTC market is through a reputable broker-dealer using major online platforms like OTC Markets.

    Top best OTC exchanges today

    • Coinbase
    • Kraken
    • FalconX
    • Binance

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