If you’re looking to venture into crypto OTC trading, you’re at the right place. This article will explain some strategies you could use for profitable trading. But first, you need to know what OTC trading is all about.
What Is Crypto OTC Trading?
Over-the-counter (OTC) trading is conducted on a decentralized market with trading stocks, currencies, commodities, and participants transacting directly without a broker or central exchange. Therefore, unlike the auction market system, over-the-counter markets occur electronically through platforms like Swyftx OTC desk and many others.
OTC Crypto trading nonetheless refers to the buying and selling of cryptocurrencies directly through private exchanges with individual sellers or buyers. OTC trading is not straightforward as there can be variations and different trading levels, depending on the market forces and parties in the trade. It makes it an individual and highly intimate trading process.
OTC traders constantly look for buyers and sellers willing to trade at reasonable prices. Therefore, they typically have a diverse network of investors and sellers. Also, they’re consistently interacting and speculating, so they pick out the best time to trade.
How Cryptocurrency OTC Works
If you’re an institutional investor or a high-net-worth individual trying to buy a million dollars worth of cryptocurrency, your best platform could be through OTC trading. While most people willing to buy or sell crypto commonly do it on an exchange, large orders can potentially be costly and move the market up or down. It makes the regular exchange quite risky.
So, instead of placing a trade through a regular exchange, OTC trading is conducted directly between the buyer and seller. An OTC broker will supply it with liquidity, or they’ll find someone willing to take the other end of the trade.
Types Of OTC Venues
There are two main types of OTC venues, and these include:
- The inter-dealer broker is a firm that matches a buyer and seller. They’ll usually advertise a fee for their match-making services to buyers and sellers.
- A principal OTC trading company acts as a counterparty and takes on the trading risk of its clients.
If you blindly get into OTC trading, you can end up losing more than you would in a regular exchange. OTC brokers will profit from you if you don’t know how trading works. To help you get ahead of the game, here are some strategies you could use:
1. Don’t Give Too Much Information
While you may think that shopping around for the best-selling deal is a good strategy, it’s not. When you shop around, you give brokers some information they could use to play and make money off you. For example, one of the brokers you call can look for a counterparty for the trade, leading to a market awareness that there’s an eager seller. It can lead to the withdrawal of buy orders from the brokers, resulting in a fall in the crypto price.
On the other hand, you could pick a trusted partner when you call a broker ahead of time. You could then execute a trade quickly without giving up too much information regarding your trade. Should you want to shop around, call the brokers simultaneously so you can trade before word goes around on the market.
2. Ask For Buy And Sell Rates
Whether you’re buying or selling, always ask for buy and sell rates when you call a broker. This way, the broker won’t know your intentions before placing the order. Revealing your intentions too early can be a disadvantage to you. Suppose you tell the broker that you want to sell, they might sell you their currency at a lower rate and recover it at the actual rate. That way, they’ll have made a profit from you.
Additionally, asking for both buying and selling rates gets you the information you could use to your advantage. You could use the rates to compare the difference between the buy-and-sell, which is an estimate of the broker’s profit. This information could help you negotiate for a reduced cost of trading.
3. Be Unpredictable
Never be predictable went dealing with brokers. Brokers can use your behavioral patterns to their advantage. If you call the same brokers every time you want to make a trade, they’ll catch on and take note of your intentions. They could then use such insights to lure you into executing trades with them.
Also, be careful with the timing of your inquiries. For example, if you call brokers every second week of the month, your pattern could become predictable, exposing you to manipulated rates. To avoid being predictable, always use different methods of inquiry; don’t call the same brokers all the time and in the same order.
4. Split Your Order
When you’re trading a certain amount, always ask for different rates for smaller amounts of your total. Say you want to trade 10,000 cryptos, get rates for 1,000 at a time. That way, you’ll spread the risk of losing. Also, the rate you get for smaller amounts might be better than for a single big amount.
When you call a broker, ask them to give you a rate for, say, 100 Bitcoins 100, and 1,000. That way, you get to compare and see what works best for you. Also, try not to buy or sell your whole amount in a single trade. When you split your order into smaller ones, you could liquidate faster and with favorable rates.
5. Don’t Trade In A Slow Market
When the market is slow, say during holidays or weekends, there are a lot fewer activities on the market. It means there’ll be fewer brokers to execute your trade. Therefore, the broker fees could be higher because there are limited options and fewer opportunities for good deals. For better deals, always trade when the market is active, but be careful not to do so when there’s high volatility, which could increase your risk.
While OTC is much faster and easier, it often comes with hidden costs such as broker fees. It also may come with some other risks and losses associated with oversharing of information. To succeed in OTC trading, you must keep your cards close to your chest. When you minimize the information you share, you reduce your risk of manipulation. Likewise, remember to share when you want to trade, be unpredictable, and do your homework. Good luck!