Over-the-counter (OTC) trading also plays a major role in the burgeoning cryptocurrency market. It handles gigantic trading volumes with high efficiency.
In an OTC, the trade occurs directly between two interested parties eliminating the need for a middleman. Unlike exchanges where the middleman is necessary, OTC enables parties to settle transactions among themselves. No quarrels occur during fixing of price, and the entire process gets completed smoothly. Only the desk that handles the business operations will know details such as the price and the trading volume. It operated in a decentralized manner without a physical location.
How trades occur in an OTC Crypto Exchange
Parties can trade a cryptocurrency for another cryptocurrency (like swapping Bitcoin with Ethereum). Another way would be trading fiat currency for cryptos (like exchanging US Dollars or Euros with Bitcoin and vice-versa). Both individuals, as well as institutions, can participate in trading through an OTC Crypto Exchange.
Advantages of OTC Crypto Exchange
- It helps in solving issues and glitches that occur when cryptocurrencies are bought and sold in large amounts.
- In the case of big deals, negotiations will have to be held with multiple sellers. Initially, the cryptos can be bought at the best market rate. But, the final set of cryptos may be purchased for a higher price due to slippage. OTC Crypto Exchanges avoid the occurrence of slippage by spreading the purchase process across multiple exchanges.
- The best price would be obtained by getting small buyers in each exchange though a lot of time will have to be spent along with incurring transaction fees.
- Sometimes, OTC Crypto Exchanges can get access to a large amount of cryptocurrency at once with their wide-ranging network. This will help in saving time and expenses for clients.
- OTC Crypto Exchange helps smaller companies that face difficulty in complying with the stringent listing requirements of exchanges.
Limitations of OTC Crypto Exchange
- Every trader must be aware of suspicious transactions that take place, especially during incidents of hacking.
- Trusted intermediaries must be hired for executing deals. Intermediaries that boast about huge amounts, and inflate the number of successful projects completed should not be given any chance.
- Having contracts with dubious intermediaries can lead to the occurrence of frauds and phishing on the platform.
- Investors can safeguard their funds by cancelling suspicious deals.
Grasping the nuances of a Principal Desk
- Every interested buyer would request a quote for the rate through a chat application
- Any trader of the desk will respond with a price fixed after taking into account the current market conditions
- This will be accepted, countered, or declined by the other party.
- If the price is accepted, the trader is obliged to deliver the required amount of cryptocurrency at the fixed rate as per a legal agreement signed during the process of…
Read more:Understanding About OTC Crypto Exchange