OTC
Over-the-Counter
OTC (Over-the-Counter) is an off-exchange trade executed directly between two parties or through an OTC desk, rather than on the exchange's public order book.
## What the term means
OTC literally means "over the counter." In crypto and fintech, it refers to trades that happen outside an exchange's open order book. The counterparties agree on price, volume and timing, and the settlement is carried out bilaterally or through an intermediary. The term is also used in traditional finance for stocks and bonds that are not traded on an exchange.
## How it works
A client (usually a large buyer or seller) requests a quote from an OTC desk. The desk offers a fixed price for a specified volume, often including a spread and a set validity period for the quote. Once the parties agree, they settle the trade: the cryptocurrency is transferred to the client's wallet, and fiat is paid to the banking details provided. Because the price is fixed in advance, the slippage typical of an exchange order book usually does not occur.
## Where it is used
OTC trades are in demand when the size of an order is comparable to the depth of the market and a market order would move the price against the trader. Typical participants include funds, miners, companies that receive revenue in crypto and convert it to fiat, and traders who need a conversion without publishing a large order. An OTC desk often works together with a market maker and a liquidity pool.
## What affects it
The key parameters are the spread, settlement terms, limits and requirements for the counterparty. OTC trades typically require KYC and KYB checks, verification of the source of funds, and AML screening. As a result, a deal can be delayed if the documents or the origin of the funds raise questions. The price depends on market conditions and on how quickly the client confirms the quote.
## Common mistakes
A common mistake is comparing an OTC quote only with the latest exchange price, without accounting for fees and the spread. A second mistake is failing to verify who the counterparty actually is: scammers pose as OTC desks and ask for prepayment. A third is sending funds before the terms are signed and the banking or wallet details are verified. Before any trade, it is worth confirming the wallet address through several independent channels.
FAQ
Is OTC the same as an exchange?
No. An exchange matches orders on an open order book, while OTC involves a direct agreement between the parties or work through an intermediary. The price and terms are set individually.
Why use OTC if exchanges exist?
OTC helps execute a large trade without significantly affecting the market and at a fixed price. It is convenient for large volumes and for fiat settlements.
What are the risks of OTC trades?
The main risks are scammers, unregulated intermediaries and delays caused by compliance checks. Before transferring funds, make sure the counterparty and the payment details are legitimate.