What is Over-The-Counter (OTC) Crypto Desk?
An OTC desk is a service for individuals or institutions to make large crypto trades at a fixed price.
What Are The Benefits of OTC Crypto Brokers in Canada?
The benefits of using an OTC Desk rather than placing an order yourself, are numerous including:
- Fixed prices
- No middleman
- Personalized service
- Won’t affect the market price of crypto
- Less likely for you bank to reject the transfer
With an OTC crypto broker, you cut out the middleman, in this case, the crypto exchange. Most crypto exchanges will charge trading fees or have high spreads, but if you use an OTC broker, they will find a buyer (or seller) for your trade, meaning you are buying (or selling) one-to-one. OTC trades are off-market trades, so they won’t affect the price of the crypto.
Usually, you will receive a quote for your trade and once locked in, your trade will be executed. The buyer (or seller) could be an individual or an institution.
OTC crypto brokers will also offer a personal account manager, someone you can speak to and deal with directly. They will be responsible for finding you the best price to buy (or sell) your crypto. They will also execute the trade for you once you have agreed on the price and date/time of the transaction.
A large transaction going to a crypto exchange may be flagged by your bank. By using an OTC Desk, your transfer will go to the OTC crypto broker and therefore won’t be obvious that your funds are intended for a crypto trade.
How is OTC trading is different from regular crypto exchanges trading?
If you were to make a large trade on a crypto exchange, say $20,000 of Bitcoin, you’re unlikely to find one person selling that much. Instead, you would need to buy smaller amounts from multiple people, which can increase the slippage (loss of crypto actually received).
An OTC desk will instead find one buyer for you and quote you a price so you will receive exactly $20,000 worth of Bitcoin.
Example of OTC Trading Crypto transaction
Once you have gone through the onboarding process, your dedicated account manager will quote you a price e.g. $25,000 for 1 BTC. Once you agree, they will find someone selling 1 BTC for slightly less than $25,000, say $24,000. Once they have found one, on the agreed date you send your $25,000 via bank transfer to the broker’s bank account. They will send you 1 BTC to the wallet of your choice and will pay the seller $24,000 while keeping $1,000 in profit. This $1,000 is the spread.
Alternatively, an OTC broker may give you 1 BTC instantly from their own liquidity and charge a service fee instead of a spread.
How Do OTC Desks Make Money?
OTC desks can make money in two ways. They can profit from the spread which is the difference between the price of the crypto bought and sold for, or they can charge a service fee which is included in the quoted price for your trade. It is not common for OTC desks to have hidden fees, unlike exchanges.
Advantages of Bitcoin OTC Trading
The main advantage of bitcoin OTC trading is that you can purchase or sell large amounts of bitcoin in just one transaction.
You’ll receive a dedicated account manager who will find buyers or sellers for you and will execute the trade on your behalf. All you need to do is send your funds via bank transfer. If you’re selling crypto, you only need to send the crypto the wallet that the OTC desk gives you. Everything else is taken care of.
You will also receive exactly as quoted. When buying crypto on an exchange, you may lose some to slippage, meaning you might think you’re getting 1 BTC but in reality you receive 0.99 BTC.
When using an OTC desk, your bank is unlikely to flag the transfer since your funds will be going to the broker’s bank account rather than your fiat wallet on the exchange.
Disadvantages of Bitcoin OTC Trading
Spreads or fees may typically be higher than on crypto exchanges.
You will likely not have as many cryptocurrency options.