1. What is OTC-trading?
OTC stands for Over-the-Counter, literally translated as “over the counter”. This term refers to over-the-counter trading that takes place directly between clients and market makers. In that case, the seller and the buyer deal directly with each other, usually with the help of third parties. OTC trading has long been an important tool in the traditional financial market, but in 2018 it has also found wide application in the field of cryptocurrencies.
2. Why do market participants choose OTC trading?
Market participants may abandon traditional exchanges in favor of OTC for a number of reasons, including price stability, speed of execution, security and privacy.
3. How is OTC trading different from exchange trading?
When trading on an exchange, a large transaction usually involves many small trades, and the rate in each one can vary. The liquidity and volatility at the time determine the number of transfers needed, as well as the spread of rates. Price fluctuations commonly seen in the cryptocurrency market can significantly increase trading costs and hurt market participants.
With OTC trading, customers are limited to one large transaction, which improves efficiency and avoids the complexity of execution across exchanges. In addition, the transaction is not recorded in the order book of the exchange and is not publicly displayed, allowing for a higher level of privacy.
4. What does OTC trading have to do with tokensales?
Much of the cryptocurrency funds have been raised through token campaigns launched in 2017 and early 2018. For example, Element Group helped its clients raise more than $500 million. Clients of The Element Group’s OTC trading service, professional and innovative risk management services, and liquidity and capital solutions are provided. For companies in the post-ICO stage, actively managing funds raised is a key challenge, and OTC trading service can offer thoughtful, customized solutions.
5. How does demand for OTC change over time?
In the cryptocurrency world, OTC trading has long been the domain of big players and “whales,” but a number of factors have influenced the recent increase in interest and wider acceptance of OTC in the industry. Mainstream cryptocurrency exchanges are now known for their huge rosters of unverified users, so OTC trading services are starting to actively occupy the niche of “average” market participants with orders of $100k and above. This is especially relevant against the background of the complexity of depositing and withdrawing fiat funds from exchange accounts and the constantly changing regulatory framework. Once the regulatory field becomes more defined, large players will need tools that have the attributes of liquidity and risk management of the OTC market.
6. What impact does regulation have on OTC trading?
As cryptocurrencies face regulation, security guidelines and other tests, they will become more prepared to compete in traditional investments. Growing demand at the institutional level requires deeper and more constant liquidity. Often cryptocurrency exchanges cannot meet these liquidity requirements, which gives added impetus to the expansion of the OTC trading market.
7. How do I choose an OTC trading provider?
OTC firms provide solutions to liquidity, pricing and information problems. This emphasis on providing one price or solution and working individually with each customer creates a customer-centric environment that allows the service to expand in new directions, from escrow to lending to syndication.
The best OTC providers adapt to emerging and uncertain markets, balancing confidence and humility to offer their customers consistently competitive services and liquidity.
A key factor in comparing providers should be their ability to transact in fast-growing markets defined by high volatility, illiquidity and algorithmic trading prowess.