What is Bitcoin OTC? Detailed explanation of OTC trading methods
Over-the-counter (OTC) trading is the trading of Bitcoin either peer-to-peer or through a middleman, and is different from trading on a cryptocurrency exchange. OTC trading allows users to conduct large transactions, protect privacy, and customize terms according to specific needs. However, it also faces disadvantages such as low liquidity, counterparty risk and high costs.
What is Bitcoin OTC?
Over-the-counter (OTC) refers to Bitcoin trading that occurs outside of exchanges. Unlike trading on an exchange, OTC trading occurs directly between two parties, often facilitated by an intermediary or broker.
OTC Trading Methods
OTC trading can be conducted in a variety of ways, including:
- Peer-to-Peer (P2P): Buyers and sellers are connected directly through P2P platforms such as LocalBitcoins or Paxful.
- Broker: A professional broker matches both parties to the transaction and provides price and clearing services.
- Over-the-counter trading: Large traders or institutions quote prices to customers and then trade directly.
Advantages of OTC Trading
- High Amount Transactions: OTC trading is usually used for larger amount transactions because The exchange may not be able to accommodate the demand for such transactions.
- Privacy: OTC transactions are typically invisible to the public, thus protecting the identities of both parties to the transaction.
- Flexibility: OTC transactions can be customized to the specific needs of both parties, such as price terms and delivery time.
Disadvantages of OTC Trading
- Low Liquidity: OTC market is less liquid compared to exchanges , which may result in transaction delays or slippage.
- Counterparty Risk: OTC trading has no central counterparty, so there is a risk of default by the counterparty.
- High Costs: OTC transactions typically charge higher fees, including broker or middleman commissions.
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