Over-the-Counter (OTC) Transactions refer to trades executed directly between two parties without the involvement of a centralized exchange or public order book. Their purpose is often to facilitate large block trades, secure preferential pricing, or conduct transactions in illiquid assets that would otherwise cause significant market impact on an exchange. In the crypto space, OTC desks are common for institutional investors seeking to trade substantial volumes of digital assets with minimal slippage.
Mechanism
The mechanism of OTC Transactions involves direct negotiation between a buyer and a seller, or more commonly, through an intermediary such as an OTC desk or broker. This typically begins with a Request for Quote (RFQ) where the institutional client requests a price for a specific crypto asset quantity. The OTC desk provides a customized price, often incorporating a spread, and upon acceptance, the trade is executed bilaterally. Settlement then occurs directly between the parties or through a trusted third-party custodian.
Methodology
Engaging in OTC Transactions employs a relationship-based and risk-managed approach. Participants prioritize counterparty due diligence, negotiated pricing, and custom settlement arrangements to address the lack of exchange-based clearing. Institutional crypto traders utilize OTC desks for discretion, liquidity sourcing, and price execution efficiency for large orders that might move public markets. This approach enables specialized trading strategies and access to unique market segments, particularly in illiquid or emerging digital asset classes.
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