What is Crypto OTC Trading and How Does it Work?



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What is OTC Trading?


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OTC trading is fast becoming an alternative to accessing cryptocurrencies. Learn more about OTC trading markets, what it entails and how to get started with OTC trading today.

Over-The-Counter Trading, or OTC Trading, is a framework of financial technology that enables trading markets outside a regular exchange. Specifically, within the crypto and bitcoin market, it is a private trading market for buying or selling crypto. The transaction processes involved with otc trades are not regular as there are considerable variations at different levels depending on the actors of the exchange and the market forces of each period. This provides increased privacy for buyers and sellers, making OTC highly intimate and individual.

Generally, OTC trading maintains a varied network of crypto trading markets for investors and sellers. To satisfy their customers, OTC traders are constantly searching for buyers and sellers willing to trade at reasonable prices. Moreover, their consistency, interactions and speculations enable them to detect the best time to conduct a given transaction. Thus, once buyers or sellers place their orders, the OTC trader endeavours to purchase the assets needed to complete a requested transaction.


Understanding Crypto OTC Trading in seconds

Crypto OTC Trading is simply trading crypto assets directly between two parties in a closed trading market. This trading market is unlike an exchange where there are several prices. Here, the parties involved only have the private price they show and can negotiate deals based on the amount each party has or is interested in buying. Imagine a picture of two persons involved in private trading negotiations. On the one hand, one person is available to sell assets at a given price, and on the other hand, the other is willing to buy assets at a given price. 

An OTC trade occurs when both parties agree on the trade price or exchange for which they agree. A trade can be crypto-to-crypto (For example, swapping bitcoin with tether) or fiat-to-crypto (For instance, swapping XAF or Rand for bitcoin and vice versa). Whether crypto-to-crypto or crypto-to-fiat, the need for a “trading market or desk” to effect the transaction is imperative. OTC trading markets or desks are professional platforms dealing directly with crypto buyers or sellers. They could be an OTC Trading Principal Desk or Agency Market.

Difference Between Principal and Agency OTC Trading Market

Trading with principal desks or OTC trading markets entails using funds to purchase requested assets upon request of their customers. This, by extension, implies that the OTC trader is assuming risk in the process on behalf of their customer.  

Here is how it happens: After placing a request through a chat application, one of the market traders responds with a price based on current market rates and conditions. At this point, you (the customer) can decline, counter (negotiate) or accept. Upon mutual agreement, the OTC trading market commits to deliver the asset, per a legal agreement signed during the onboarding process.

Then, the otc trader or OTC trading market provider searches within its network to determine the best way to purchase the requested assets. The fact that the OTC trading market is using its funds to buy a customer's assets is risky because there is a high probability that prices will start spiking higher before they can attain the customer's request. 

This is also disadvantageous to the principal otc trader, given that they aim to purchase all the ordered assets for an average price slightly under the market price in order to make a profit. If the OTC trading market successfully buys all the requested assets, the customer receives instructions on where and how to make payments for the assets. Thus, the OTC trader only sends the assets purchased after the customer has made payment.

Contrary to the Principal OTC trading market,  the Agency type OTC trading markets do not trade with their own funds and, thus, do not assume market risk. Here, customers have to pay a fee to the OTC trading market, permitting it to act as a middleman on their behalf.

For instance, If you were to buy any assets from an OTC trading market Agency, you would first fund an account with them and then offer a range for which you are willing to purchase the assets. The OTC trading market agency will then attempt to buy assets with the customer's funds at an agreed-upon price. In this case, the risk falls on the customer because the price of assets (BTC or USDT) may increase before the OTC trader can complete the purchase. If this were to happen, the trader would not fulfil the customer's request until updates are made.

Why Use a Crypto OTC Trading Desk?

High-volume traders, institutions, private wealth managers, and hedge funds benefit from cryptocurrency OTC desks. These buyers have large capital bases and the ability to trade in large volumes, with transactions typically ranging from US$ 25,000 to US$ 75,000. The OTC cryptocurrency broker usually sets such transaction limits.

Buying or selling large amounts of crypto is the most challenging thing faced by crypto merchants. Let's assume that you want to buy 1000 BTC. First, it will be challenging to get all that amount from one seller all at once. If you attempt to buy from one seller, chances are that you won't get all the assets at the same price because fulfilling a large number of orders on a single exchange will take time, and market volatility will influence the price.

However, this problem of buying large amounts of crypto is resolved through trading with OTC trading desks. Through the Principal or Agency OTC market, you can buy any amount of BTC on a single order without stress.

Before discussing the Yellow Card's Commercial Trading desk procedures, let's look at some advantages of trading crypto using the OTC market desk.

The Advantages of Trading with an OTC Market Desk

  1. Liquidity: Liquidity is the prime factor as far as over-the-counter trading is concerned. It is an open secret that crypto exchanges specifically have very low liquidity. Exchanges often struggle to execute a large order effectively, so they break that order into small pieces. On the other hand, purchasing cryptocurrencies through an OTC trading market minimises the risk of price spikes, given that most OTC trading markets can sell large amounts of crypto.
  2. Confidentiality: OTC trading markets exchanges are a one-to-one affair, thereby offering slim chances for third parties to come between a transaction or know them. This makes exchanges within this space to be essentially private. As such, customers can run their transactions without any fears or threats.
  3. Direct Transactions: With OTC trading markets, buyers and sellers are empowered to make direct trades void of third parties and without any restrictions. This directly solves the problem of scam schemes that most often act under the banner of third parties, commonly referred to as “plugs”. With direct transactions, buyers can trace their sellers.

Read More: Legit Crypto OTC Trading Platform to Use for High Volume Trades

Crypto Commercial Trading at Yellow Card

Commercial Trading Desk at Yellow Card

Commercial Trading Desk at Yellow Card

At Yellow Card, our Commercial Trading uses the Principal desk- thereby assuming the risk for our clients. The process is not only easy and relaxing but also a response to your fears and uncertainties about the much-talked-about crypto saga. First, get to know the five-step procedure that takes a few minutes to complete.  

  1. Fill account request: Get started by simply filling out a request form.
  2. Complete KYC: On the limits tab of your YC account, upload the required documents to increase your limits.
  3. Request a quote for your grade: We will connect you to one of our expert traders to provide a quote per your request.
  4. Confirm trade: You choose whether or not you wish to buy at the price offered. If you agree, the trade is confirmed, and the trader will ask for your transaction details (fiat or crypto). After confirming the trade, wait for a confirmation of the transaction via email. In this email, you’ll find payment instructions for the Commercial Trading bank account, where you will make the payment.
  5. Complete trade: Once Yellow Card Commercial Trading receives the transaction, our trader will send the assets to the specified wallet address, along with a confirmation email to your inbox, and the trade is complete.

Where to find Yellow Card Commercial Trading Desk

Yellow Card Commercial Trading desks are operational in all Yellow Card regions. In the African region, trade with our biggest markets in Ghana, Cameroon, Uganda and South Africa at exceptional prices and rates.  In each of the markets, you can get a minimum transaction of 50 000 USD.

The uniqueness of commercial trading at Yellow Card lies in the satisfaction of our clients. With Yellow Card, clients can buy any amount of bitcoin their wallet permits them, with no limitations, and no restrictions. This is achieved as our team of expert traders takes your demands personally and handles them with all the integrity and professionalism required to keep you satisfied and impressed. Finally, your transactions with the Yellow Card commercial trading desk are treated with the utmost confidentiality.