What is OTC trading in crypto?

OTC trading means buying or selling an asset through a direct deal, outside of a public exchange. In crypto, this means you do not place an order in the exchange order book, but trade via a private quote or agreement. For example, you agree on a price for a specific volume, after which the transaction is executed. This can happen in several ways. Sometimes it is a direct deal between two parties. More often, it takes place through an OTC desk: a party that connects buyers and sellers and helps with pricing, settlement, and execution. OTC desks are commonly used by parties that want to move larger amounts, such as professional traders, companies, or high-net-worth individuals. In practice, the easiest and safest route is usually to trade through a reliable and established provider. If you want to get familiar with the market first, you might start with a well-known coin like Bitcoin and later decide whether OTC trading suits your needs. At Coinmerce, you can get started right away and easily buy crypto using iDEAL or credit card.

In short

• OTC trading takes place outside a regular exchange.
• It is mainly used for large orders to avoid disturbing the market price.
• Advantages include fixed pricing, discretion, and smooth execution of large volumes.
• Disadvantages include less transparency and reliance on the counterparty‘s reliability.

Which assets are traded OTC?

OTC trading exists not only in crypto but also in traditional markets. In crypto, OTC is mainly used for assets with strong demand and liquidity, but it can also be used for less liquid coins if a suitable counterparty is available. In practice, this often includes:

• Major cryptocurrencies such as Bitcoin and Ethereum
• Other large altcoins with sufficient trading activity
• Sometimes stablecoins for parties converting large amounts

The key point is that OTC is especially useful when an order in the public order book would have too much price impact, or when you prefer to agree on a fixed price for a specific volume.

What is the difference between OTC trading and regular exchange trading?

With regular exchange trading, you place an order in an order book. That order may be visible to other traders. The price you ultimately pay or receive depends on supply and demand in that order book at that moment. With OTC trading, the price is usually agreed in advance or offered as a quote. Execution happens outside the public order book. As a result, the transaction is typically less visible to the market and price impact may be smaller. Key differences:

• Exchange: price is formed in the order book; OTC: price via quote or agreement.
• Exchange: risk of slippage for large orders; OTC: often a fixed price for the full volume.
• Exchange: ideal for smaller volumes; OTC: designed for large volumes and custom deals.

Why can large orders affect the price on an exchange?

On an exchange, prices are determined through an order book where buyers and sellers place bids and asks. A large order can consume multiple price levels, meaning the average execution price becomes worse than expected.

How does price formation work on an exchange?

The price you see on an exchange is often the last traded price. However, the actual execution price depends on the liquidity in the order book. For large orders, not everything fills at the best price — the order moves through the next available price levels.

What happens with a large buy order?

A large buy order can push the price up because you are purchasing a lot of available supply at once. The difference between the expected price and the actual execution price is called slippage. For large orders, this can be significant, especially for coins with lower liquidity.

Additional market impact through visibility

Large orders are often noticed by other traders. This can trigger reactions where others follow the movement or market makers adjust their prices. This effect can further negatively impact the execution price for the trader placing the large order.

Who is OTC trading suitable for?

OTC trading is mainly intended for individuals or organizations that want to move larger amounts, such as high-net-worth individuals, funds, or companies adding crypto to their balance sheet. For small amounts, OTC is usually less relevant because exchanges typically offer sufficient liquidity.

The advantages of OTC trading

• Less market impact: Your own order is less likely to move the price against you.
• Reduced slippage: More certainty about the average price through a fixed quote.
• Discretion: The transaction is less visible to other market participants.
• Service: An OTC desk can assist with timing and practical settlement.

Disadvantages of OTC crypto trading

• Less transparency: There is no public order book, so you rely on the quote.
• Counterparty risk: You depend on the reliability of the desk or counterparty.
• Minimum volumes: Transactions often require relatively high minimum sizes.

Is OTC crypto trading legal?

OTC trading is legal as long as the transaction complies with financial regulations and anti-money laundering rules. Serious providers therefore use KYC and compliance procedures. It is important to trade only through parties that follow these rules.

Frequently asked questions

What are the disadvantages of OTC?

The main disadvantages are lower transparency and counterparty risk. In addition, minimum transaction sizes often apply, and the process is less immediate than placing an order on an exchange.

What is the difference between OTC and exchange trading?

In exchange trading, the price is formed publicly in an order book. In OTC trading, you make a direct deal outside the exchange at an agreed price, usually to avoid slippage for very large amounts.

What is the difference between an ETF and an OTC product?

An ETF is a regulated fund traded on a public exchange. An OTC product is traded outside the exchange through direct quotes between two parties.

Ready to get started with crypto?

Ready to start with crypto yourself? At Coinmerce, you can easily buy crypto using iDEAL or credit card. This lets you start quickly with an amount that suits you and gradually build experience in the market.