What is OTC trading?
OTC stands for Over-the-Counter, literally translated bypassing the counter. This term refers to over-the-counter trading conducted directly between customers and market makers. In this case, the seller and the buyer make a deal directly with each other, usually with the assistance of third parties. For a long time, OTC trading was an important tool in the traditional financial market, but in 2018 it was widely used in the cryptocurrency sector.
Why do market participants choose OTC trading?
Market participants can opt out of traditional exchanges in favor of OTC for a number of reasons, including price stability, speed of execution, security and confidentiality.
How is OTC trading different from trading on the exchange?
In the course of trading on the stock exchange, for carrying out a large transaction, you usually need to make many small transactions, and the rate in each may vary. Liquidity and volatility at that time determine the number of transfers needed, as well as the spread of courses. Price fluctuations commonly observed in the cryptocurrency market can significantly increase trading costs and harm market participants.
During OTC-trading, customers are limited to one big deal, which allows to increase efficiency and avoid difficulties with execution on different exchanges. In addition, the transaction is not recorded in the book of orders of the site and is not displayed publicly, which allows to achieve a higher level of confidentiality.
What does OTC trading have to do with token sales?
A significant part of cryptocurrency funds was collected through token campaigns launched in 2017 and early 2018. For example, Element Group helped its clients attract more than $ 500 million. The Element Group OTC-trading service provides professional and innovative risk management services, as well as offers solutions for working with liquidity and capital. For companies in the post-ICO phase, the active management of the collected funds is a key challenge, and the OTC-trading service can offer thoughtful individual solutions.
How does OTC demand change over time?
In the world of cryptocurrencies, OTC trading has long remained the destiny of major players and “whales,” but a number of factors have influenced the recent increase in interest and wider adoption of OTC in the industry. Mainstream cryptocurrency exchanges are currently known for their huge lists of unverified users, so OTC-trading services are beginning to actively occupy the niche of “average” market participants with orders of $ 100 thousand and higher. This is especially true against the background of the difficulty of depositing and withdrawing fiat funds from exchange accounts and constantly changing regulatory frameworks. After the regulatory field becomes more defined, large players will need instruments with attributes of liquidity and risk management of the OTC market.
What effect does regulation have on OTC trading?
As cryptocurrencies face regulation, security recommendations, and other trials, they will become more prepared to compete in traditional investments. Institutional demand growth requires deeper and more constant liquidity. Often, cryptocurrency exchanges cannot satisfy these liquidity requirements, which gives an additional impetus to expand the OTC trading market.
How to choose an OTC trading provider?
OTC firms provide solutions for liquidity, pricing and information. This emphasis on providing one price or solution and individual work with each customer creates a customer-oriented environment that allows you to expand the service in new directions: from escrow to lending and syndication.
The best OTC providers adapt to the conditions of developing and uncertain markets, balancing between confidence and humility, and offer their customers consistently competitive services and liquidity.
The key factor when comparing providers should be their ability to conduct transactions in fast-growing markets, determined by high volatility, illiquidity and algorithmic trading skills.