A method of trade execution where two parties engage in bilateral discussions to agree upon the terms, price, and quantity of a digital asset transaction, rather than executing through a public order book. In crypto, this is prevalent in institutional and over-the-counter (OTC) markets for large block trades. Its purpose is to facilitate transactions with minimal market impact and tailored conditions.
Mechanism
Direct negotiation operates outside the standard exchange order book mechanism. Parties, often facilitated by a broker-dealer or a dedicated OTC desk, communicate trade parameters directly. Price discovery typically involves request-for-quote (RFQ) systems where liquidity providers submit tailored quotes for specific trade sizes. Once terms are agreed, the transaction is settled, frequently off-chain or via specialized settlement networks, reducing latency and avoiding price slippage inherent in open markets.
Methodology
The strategic approach for direct negotiation involves identifying suitable counterparties or OTC providers capable of fulfilling the required trade size and asset type. Participants evaluate quotes based on price competitiveness, execution certainty, and settlement efficiency. Emphasis is placed on discretion and minimizing information leakage to prevent front-running. This method is particularly useful for institutional investors moving substantial volumes of crypto assets, seeking customized execution solutions and reduced market friction.
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