With the increasing number of cryptocurrencies emerging every day, the popularity of crypto exchanges around the world is also increasing at a rapid pace. But today we are going to talk about an alternative to the traditional exchanges to trade crypto: Over the counter (OTC) trading. While exchanges are suitable for retail investors, they might not be the appropriate platforms when whales operate in huge sums. This is where OTC crypto trading comes in.
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OTC Crypto Trading: What Is It?
When it comes to trading large volumes of crypto, it gets challenging to execute trades on traditional exchanges. Over-the-counter or OTC crypto trading has thus become a popular option among crypto traders around the world to handle huge amounts of trade. In OTC crypto trading, direct transactions between two parties are involved, which results in greater flexibility and liquidity.
With OTC trading, traders can expect more privacy and higher transaction limits, which work as a gateway to the fluctuations in the market. Over-the-counter trading also facilitates greater flexibility and more securities to trade while being a cost-effective solution.
However, it is important to choose the right OTC provider in order to limit the risks associated with crypto trading. This article will highlight the factors you need to consider when choosing the right provider for OTC trading.
Top 5 Factors to Consider When Choosing the Right OTC Partner
While it is always a good idea to conduct significant research before relying on an OTC trading provider, here are the five qualities you can check when choosing one.
Liquidity
When dealing with large volumes, one of the major pain points that most traders face is liquidity. Liquidity is the secret to successful OTC trading. So when choosing an OTC partner, make sure to check if they have deep liquidity pools.
This will help you understand if the provider is capable of handling your trading volume without having an impact on market prices. The OTC partner you are opting for must also be quicker to execute trades efficiently with minimal price slippage.
Transparency
When you are dealing with large volumes of trades, maintaining transparency is crucial in the crypto space. When choosing an OTC provider, make sure to check if they offer transparent pricing and execute trades with transparency.
The best approach here would be to ask the service provider about the transaction costs and trading fees, along with any other hidden fees, if applicable. This will establish clear communication between both parties.
Security
In the crypto market, another crucial element to look for when selecting an OTC provider is security, as more and more crypto theft and hacking are on the rise. In this scenario, it will always be the best idea to seek a provider that provides multi-factor authentication, cold storage of assets, and frequent security audits.
The OTC provider you are opting for must also have a strong insurance policy in place to secure your crypto assets in case of an emergency, like a security breach.
Flexibility
The crypto market has been rapidly growing since its inception and is also ever-changing due to market volatility. The OTC provider you are choosing must be able to handle diverse trading strategies that include customised pricing as well as large block trades.
The provider for OTC trading you are intending to go with must be able to adapt to the changes in market conditions and assist you in executing trades efficiently and in a timely manner.
Reputation
Finally, you need to consider the reputation of the provider you are willing to select when shortlisting your options. An OTC provider with a proven track record of conducting trades effectively and efficiently. To verify if the provider you are choosing is trustworthy and reliable, make sure to go through their customer reviews, and research their background. This way, you can identify any red flags that might indicate potential issues.
Conclusion
OTC crypto trading can be a viable solution to conducting huge volumes of crypto where traditional exchanges seem to fall short. However, despite the many benefits, you need to consider the factors mentioned above when choosing the right provider for OTC trading. This way, you not only mitigate the risk associated with crypto trading but also execute trades safely and effectively.
Frequently Asked Questions
Can Trading OTC Affect Prices?
Since OTC is meant for large volume trades, it can cause distortion in the asset price when traded on exchanges. This can, in turn, cause slippage.
What Are the Top Benefits of OTC Crypto Trading That Exchanges Lack?
OTC trading offers higher confidentiality, direct transactions, and greater liquidity.
Is OTC Trading Decentralised?
OTC crypto trading is a decentralised process with no central authority to oversee it.