OTC Trading: The Secret Weapon of Large Investors, Why Are Institutions Engaging in This?

Have you ever seen BTC suddenly plummet, yet someone quietly buying in the OTC market? This is the power of OTC Trading – bypassing the public Order Book of the exchange, two people directly negotiate a deal.

Why do big players choose OTC?

Privacy Explosion: No public order book, no one knows what you are buying or how much. Preferred by hedge funds and high-net-worth individuals, because once you place an order for 100 BTC on Binance, the entire market can see it, the price reacts directly, and costs explode.

Unmatched Liquidity: OTC brokers can connect buyers and sellers globally, and even if you want to buy 500 ETH, it won't plummet the market. The order book depth of the exchange simply can't handle it, while OTC directly interfaces with large clients for a fixed price transaction.

Flexible to the Extreme: Settlement methods, prices, and times can all be negotiated. Want to use bank transfer, stablecoins, or cash settlement? It's up to you. The exchange has a fixed set of rules, no room for negotiation.

What about the risks?

Counterparty risk is the most painful: Direct trading means you rely entirely on the other party's credit. A coin has been transferred to you, but the B coin hasn't arrived? OTC brokers are just intermediaries, and real problems arise when issues occur. Therefore, large transactions generally use third-party escrow.

Price Opacity: OTC trading prices may be 20% higher than Binance, or 10% lower, depending on negotiation skills and market supply and demand. There is no real-time market data, leading to information asymmetry.

How to play OTC Trading?

Liquidity Provider Mode: Some traders act as “market makers” and proactively quote buy and sell prices. They earn the spread (Bid-Ask Spread), just like forex brokers.

Cross-Market Arbitrage: Some people buy BTC at a lower price in OTC Trading and then sell it on the exchange, taking advantage of the price difference. This arbitrage behavior actually helps the market price more efficiently.

Hedging Operations: Institutions build large positions in OTC trading while hedging risks in the futures market or buying derivatives to lock in price volatility.

OTC vs exchange, who wins?

Real Scenario: Retail investor buying coins with 5000 USDT? Go to Binance for a quick buy. Institutional investor buying coins with 5 million USDT? One call to an OTC broker to get it done, saving 200,000.

Be cautious in this area of regulation

Global regulation is becoming increasingly strict. KYC (Know Your Customer) and AML (Anti-Money Laundering) have become standard practice—OTC brokers must verify customer identities, monitor transactions, and report suspicious activities. The United States, the European Union, and Singapore are all watching this market, and the previous era of “dark OTC” is mostly over.

Core Recommendation: Choose licensed and reputable OTC brokers (such as Kraken OTC, Genesis Trading, etc.), and for large transactions, always use escrow services; do not be tempted by cheap prices from small brokers.

The essence of OTC is: big players game, high threshold, and high risk. But for institutions that truly need liquidity, this is a necessity.