How to Get Started On Crypto OTC Trading
If you’re exploring cryptocurrency markets, then you’ve come to the right place. Here at GSR, we’re creating a series of guides to nurture the next generation of cryptocurrency traders. We’re starting with Cryptocurrency OTC Trading.
You may have already heard about the over the counter trading of Bitcoins, but let’s start with the basics.
What is OTC trading?
You can enter financial markets either as a buyer or seller. And whether you’re a buyer or seller, you can trade on exchanges or with over the counter (OTC) trading desks.
Exchanges like the New York Stock Exchange or Nasdaq act as a negotiator between the buyers and sellers. Prices for the sale of assets (asks) and offers to buy (bids) are posted by traders. All trades happen publicly.
On the other hand, OTC is a trade between two parties with one usually being a ‘desk’. Technically, it is just another way of trading assets such as stocks, bonds, derivatives, and currencies.
With OTC, trading happens via a broker-dealer network, guaranteeing more privacy for traders. OTC trading also deals with larger volume transaction when compared to exchanges.
Which is better: OTC trading or an exchange?
If you’re deciding whether you’ll do the OTC or exchange route, here is a quick look at the pros and cons of each option.
- Better for high-volume traders with a high net worth
- More privacy and anonymity
- No exchange risk
- May have higher fees compared to exchanges
- Minimum order amounts
- Can be automated
- A better fit for small-scale investors
- More beneficial for those who want to actively trade price movements
- Slippage increases the cost
- Risk of hacking and theft
- Lower transaction rate because an order may take days to fill
Where does crypto OTC trading happen?
Crypto OTC trading happens in several platforms, which include:
- Trading firms – If you want personalized treatment, there are platforms you can use where you can reach out to traders who specialize in large transactions. They avoid slippage by having access to large sources of cryptocurrency liquidity.
- Chat rooms – The first large OTC trade of bitcoin happened on the #bitcoin-otc chatroom. This is now less prevalent but still happens to this day because there are chat rooms that allow peer-to-peer transactions.
- Dark pools – These pools are private non public exchanges that are not accessible to the wider public market. These non transparent markets have no order book and allow large investors to trade with each other independently.
When do you use crypto OTC trading instead of crypto exchanges?
Traders who use OTC prefer it over exchanges because of the privacy and high liquidity. If you do trade large amounts on exchanges, you could make an impact on the market. If you use an OTC trading desk, since the transaction is direct between two parties, it will not show up in an exchange order book. You also have a better chance of your order being filled in one go at the price you want. In an OTC transaction you are dealing with one counterparty on the other side of the trade, on an exchange there are hundreds if not thousands of traders on the other side, all of whom have a different perspectives and preferences on price.
If you place an order of high volume on an exchange the market could move against you, preventing you from getting the best price for your asset and greatly jeopardising the trades efficiency.
How much money do I need to start crypto OTC trading?
“Is there a required amount for OTC?” and “Am I going to be rejected for wanting to start crypto OTC trading if I don’t have enough capital?” These are some common questions from new entrants in the market.
According to CoinTelegraph, there are desks that only allow transactions larger than 20 BTC (around $220,000 as of September 2020) and others who require their investors to trade the equivalent of at least $250,000 or more. However, for some smaller desks, you only need 10 Bitcoins ($110,000 as of August 2020) to start OTC trading.
How do I trade crypto like bitcoin over the counter?
Here’s a step-by-step guide on how to do OTC trading:
Step 1: Find an OTC brokering platform
Make sure to find a reputable OTC trading desk. You can search online, or also ask for recommendations from people you trust. If they have a website, make sure to check their team and backgrounds so you can take a look at their credentials.
Step 2: Decide your terms
Specify what type of cryptocurrency, how much you want to buy, when you want the trade to take place, and your desired price.
Step 3: Agree to a price
The counterpart will respond with their own price and you can negotiate. Once you both have agreed on a price, the value can be transferred. During this stage, a KYC (Know Your Customer) due diligence may also be performed by the desk and relevant parties.
Crypto OTC Trading FAQs
Now we’ll answer frequently asked questions about cryptocurrencies like Bitcoin.
How much Bitcoin can you buy at once?
Bitcoin is currently trading just under $50,000, you can buy as many Bitcoins as your investment budget can afford. However it is also possible to buy a fraction of a Bitcoin. Technically, you can buy as little as one hundredth million of a Bitcoin (0.00000001 BTC, or 1 satoshi) but exchanges will usually have a minimum of $5-$10 per transaction.
Is Bitcoin a good investment?
Bitcoin was coined the investment of the decade in late 2019. Its return on $100 was 9,150,088% beating Amazon at 3,156% and Apple at 2,345%.
It appears Bitcoin is being more seriously considered as a speculative hedge to long term inflation, and general macro uncertainty. Reputable commentary from traditional investors has increased since renowned hedge fund manager Paul Tudor Jones stated that 2% of his portfolio is currently in Bitcoin, declaring it a ‘great speculative investment.’ Publicly traded company Microstrategy has also invested over $1 billion in Bitcoin. The car manufacturer Tesla recently disclosed they invested $1.5 billion in Bitcoin.
Should I buy Bitcoin over gold?
Market commentators have long compared Bitcoin to ‘digital gold’. Gold in traditional markets has been a safe haven asset and hedge to inflation for decades. Some advantages Bitcoin has over Gold is that its supply is fixed, its is far more portable, and its highly liquid market trades 24/7.
How do I get started on bitcoin OTC trading?
You can start right here. At GSR.io, we offer you deep liquidity and unrivalled prices.
Our competitive advantage is our Smart Order Execution that finds liquidity and prices across a wide range of market participants and exchanges from over 50 countries. Aside from 24/7/365 service trading, we trade 200 crosses of digital assets and we are connected to the industry’s leading custodians. By trading with us, you will gain access to our global banking network.
Read more about our OTC trading services here.