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OTC or Exchange for Trading Digital Assets

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Billions of dollars in cryptocurrencies and other digital assets are being traded daily either on an exchange or an OTC (over the counter) desk. Each platform has its merits however there is no hard and fast rule for which one to use. Understanding the difference between the two should shed some light on which one suits your needs and trading style.

Exchanges, like Fabriik, act as a mediator between the buyers and sellers to facilitate a trade. The exchange shows the current market prices of the many cryptocurrencies, stable coins, and altcoins that they list. These platforms facilitate the trading of digital assets for fiat and vice versa and digital assets for digital assets, also known as “trading pairs”. The buyer and seller can remain anonymous however the details of the trade are not private as they are stored on a public ledger. Fees for trading here are generally lower compared to an OTC. Typically, investors on an exchange trade in quantities equivalent to hundreds or thousands of dollars.

Trading on an OTC desk is both similar and different at the same time compared to exchanges. A broker sets up a direct digital asset exchange between a buyer and seller who are looking to trade. Many trades done here have higher volumes than can be accommodated by an exchange. OTC desks mostly stick to the conversion of crypto to fiat and vice versa. Some OTC desks support crypto-to-crypto asset swaps if liquidity is at an acceptable level. Most traders here prefer to make large trades with a higher level of privacy. Trades done on an OTC are not made public. 

“A huge benefit of OTC desks is their ability to leverage their balance sheets to offer large amounts of liquidity. For our customers, this typically translates into great all-in execution prices, with no slippage.”           – Steve Walt, GM of Fabriik Markets

Digital exchanges are subject to price slippage, which happens when the price of a digital asset changes in the time between placing and executing the order. Large transaction activities sometimes create ripple effects and fluctuations in the market. This can be a cost problem for those crypto “whales” that hold a large amount of a particular digital asset. Trading on an OTC desk, a fixed price is agreed upon by the buyer and seller and the trade is executed at that value. Since these trades take place independently of the market, they don’t directly affect the liquidity of the asset you’re trading. When a price is agreed upon prior to the trade, liquidity and slippage are not factors when trading on an OTC desk.