OTC Negotiation refers to the direct, bilateral discussion and agreement on trade terms between two principal parties, typically institutional or high-net-worth participants, for financial instruments executed over-the-counter rather than on public exchanges. It bypasses centralized order books.
Mechanism
In crypto markets, OTC negotiation facilitates the execution of large block trades involving digital assets, customized derivatives, or less liquid tokens, thus minimizing market impact. This process entails direct communication, often through secure chat platforms or specialized Request for Quote (RFQ) systems, to establish agreeable terms for price, quantity, settlement methods, and collateral requirements.
Methodology
Institutional crypto desks utilize OTC negotiation to access deep liquidity pools, manage execution risk for substantial positions, and structure bespoke trades unavailable through standard exchange offerings. This approach provides price discretion and reduces adverse market movements for orders that might otherwise cause significant slippage on open, transparent order books.
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