What is Over-the-Counter (OTC) Trading?
Let's find out Over-the-Counter (OTC) Trading meaning, definition in crypto, what is Over-the-Counter (OTC) Trading, and all other detailed facts.
Over-the-Counter (OTC) is a term used to describe a way for two parties to trade securities without entering a centralized exchange. The trade occurs online through OTC-specific networks such as Kraken OTC and Coinbase Prime. Participants can trade various financial instruments such as derivatives, equities, and debt instruments among many others.
Additionally, if an asset is not eligible to be listed on a centralized exchange, it can be easily traded over-the-counter. Thus, this option is appealing to traders with small securities that don’t fill said requirements.
It’s especially appealing to private buyers, sellers, and other parties linked to huge transactions that have the power to impact the overall market and elements related to it. Additionally, OTC trading offers better prices and more flexibility. Plus, it operates well in areas where cryptocurrency exchange is prohibited.
OTC trading heightens liquidity and enhances trading flexibility in the global financial sector.
Companies going bankrupt or the ones that can’t keep their stock above a certain price per share aren’t able to buy or sell on a centralized exchange. Therefore, OTC trading is a great solution for them.
In order to find OTC-specific networks to trade in, users can look through electronic listing services. An example of this is the OTC Bulletin Board (OTCBB) which is not accessible any longer.
Risks are associated with OTCs due to their decentralized nature. Possible issues involve poor liquidity when buying and selling in high amounts. Not to mention, only the involved parties are aware of the prices since they remain private throughout the trading process. This could potentially result in uneven trading grounds.