What Is OTC (Over-The-Counter)?

OTC (Over-The-Counter): Refers to financial transactions that happen directly between two parties, outside of traditional exchanges. These trades are typically used for assets like stocks, bonds, or cryptocurrencies, and allow for customized deals without going through the public order books or exchange systems.

How It Works

• No Middleman: Unlike trades on public exchanges, OTC transactions happen directly between the buyer and the seller, often facilitated by a broker or OTC desk.
• Private Transactions: OTC trades are generally private, and the price at which the transaction occurs may not be publicly listed, giving both parties more flexibility in terms of negotiating terms.
• Customization: OTC trades can involve larger amounts, more specific conditions, or specialized agreements that are not typically available on public exchanges.

Real-World Example

Imagine a large investor wants to buy a huge amount of Bitcoin (say 1,000 BTC). Instead of placing buy orders on a public exchange, which could drive up the price, they may go to an OTC desk to negotiate a private deal. The OTC desk will facilitate the trade directly between the buyer and the seller, ensuring the price remains stable and doesn't cause market disruption.

Key Takeaways

• Large Transactions: OTC is often used for larger trades or institutional investors to avoid slippage or market impact.
• Privacy: OTC deals can be kept private, so they’re less likely to affect market sentiment.
• Flexibility: These deals are more flexible than exchange-based transactions, allowing for custom terms or settlement methods.