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.
Here’s how it works.
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?
BTC Markets is Australia’s largest digital asset and cryptocurrency exchange. Their OTC desk is for discrete, high-volume trades.
BTC Markets facilitate your deal directly. You gain access to their global network of liquidity providers. Personalised service is provided for orders worth AU$100,000 or more.
The OTC service is open to individuals, institutions, and Self Managed Super Fund (SMSF) clients. Contact BTC Markets to find out more information about OTC.
BTC Markets is Australia’s leading digital asset exchange, trusted by 270,000 verified clients who have traded over $10.5 billion. Buy, sell and trade Litecoin (LTC), Bitcoin (BTC), Ethereum (ETH), XRP and more with AUD today. Visit BTC Markets for more information.
This article was developed in collaboration with BTC Markets, a Stockhead advertiser at the time of publishing.
This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.