OTC is one of the most common abbreviations you may encounter in the stock market. It is an abbreviation of an important term, especially because of its meaning. If you are interested in the stock market, you should learn what the OTC abbreviation means so that you can make safe investments. First of all, let’s talk about what is OTC.
OTC, short for over-the-counter, refers to agreements that take place directly between two parties without the oversight of exchanges.
It is the transactions made by communicating with the market instrument called over-the-counter, such as the internet and telephone. No OTC transactions can be made on the stock market. The stock market is not involved in any transactions made in the over-the-counter market. It has no set rules and no physical space. Therefore, prices may differ. It has no central domain. Transactions by phone, fax, etc. are done through communication tools. In the OTC market, prices are determined by bargaining.
The Procedure of OTC Trading
OTC brokers take care of everything including where and how. After all, such OTC brokerages specialize in securing large amounts of cryptocurrencies without much effort from the buyer. That’s why sometimes prices are higher than on exchanges.
In practical terms, here are the step-by-step answers to the question of how to trade OTC:
- Whether the investor wants to buy 1000 BTC. It transmits this through an OTC platform or app.
- The OTC broker responds with a quote based on current market conditions.
- The investor then either accepts or rejects the price offer.
- Granted, the principal OTC desk thinks the price could go higher. Because the buyer has accepted the price offer. Thus, he assumes the risk of buying 1000 BTC.
- Once all 1000 BTC is secured, the receiver must transfer the money according to the instructions sent to him.
- The OTC broker only sends 1000 BTC after making sure the funds are sent to him.
In short, principal desks assume the risk by using their funds to buy cryptocurrencies. In contrast, another type of crypto OTC trading is the agency desk. This is a more traditional approach where the broker does not assume the market risk. Instead, they charge a fixed brokerage fee for the purchase of cryptocurrency assets.
Therefore, with the agency desk approach, the buyer assumes the risk by betting that the price will not increase before the broker completes the order. Agency desks are often combined with crypto custody services. Custody services can be thought of as custody services.
Pros and Cons of OTC Trading
Pros of OTC:
- Safest trading option for high-value and high-volume crypto-traders
- Better trading prices avoid the slippage problem
- Personalized VIP communication with a trusted broker
- Faster access to payment receipts and owned crypto funds
- A better option for ICOs to cash out their raised funds
- Superior privacy and anonymity compared to exchanges
Cons of OTC:
- Trades cannot be automated and some OTC sections are separated from exchanges.
- Fees may be higher than on exchanges.
- Limited to institutional or high-volume investors.
- Brokers are difficult to trust.
- Active trading following the price movements of the asset can be challenging.