OTC stands for Over-the-Counter, in the literal translation — bypassing the counter. This term refers to over-the-counter trading carried out directly between customers and market makers. In such a case, the seller and the buyer enter into a transaction directly with each other, usually with the assistance of third parties. For a long time, OTC trading has been an important tool in the traditional financial market, but in 2018 it found wide application in the field of cryptocurrencies.
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 privacy.
In the course of trading on the exchange for a large transaction usually need to make a lot of small transactions, and the rate in each may vary. Liquidity and volatility at that time determine the number of transfers required, as well as the spread of rates. Fluctuations in prices, usually observed in the cryptocurrency market, can significantly increase the costs of trading and harm market participants.
During OTC trading, clients 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 fixed in the order book of the site and is not displayed publicly, which allows to achieve a higher level of privacy.
A significant part of cryptocurrency funds was collected through token campaigns launched in 2017 and early 2018. For example, Element Group has helped its customers to attract more than $500 million to the OTC-trading service of the Element Group, provides services for professional and innovative risk management, and offers solutions for working with liquidity and capital. For companies at the post-ICO stage, active management of the funds collected is a key challenge, and the OTC trading service can offer thoughtful individual solutions.
In the world of crypto-currencies, OTC trading has long been the lot of large players and "whales", but a number of factors have influenced the recent growth of interest and wider acceptance of OTC in the industry. Mainstream cryptocurrency exchanges are now 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 above. This is especially true against the background of the complexity of the Deposit and withdrawal of Fiat funds from stock accounts and constantly changing regulatory frameworks. Once the regulatory environment is more defined, major players will need tools that have the attributes of liquidity and OTC market risk management.
As the cryptocurrency faced with regulation, safety recommendations and other tests, they will be more prepared for competition in the traditional investment. Growing demand at the institutional level requires deeper and more permanent liquidity. Often, cryptocurrency exchanges cannot meet these liquidity requirements, which gives an additional impetus to the expansion of the OTC trading market.
OTC firms provide solutions to liquidity, pricing and information problems. This focus 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.
A key factor in comparing providers should be their ability to Transact in fast-growing markets driven by high volatility, illiquidity and algorithmic trading prowess.
