OTC Basics by Binance Trading
At Binance, we strive to provide liquid markets on not just Bitcoin, but also the entire crypto space, including the altcoin markets which are a crucial part of the blockchain ecosystem.
There is a common misconception that OTC trading is just a fiat gateway into crypto. For those who know how to use the OTC market effectively, there’s actually a lot more value to be gained from it than simply using it to trade fiat into BTC and vice versa. In this post, we hope to clarify why OTC trading is useful to the market and how Binance Trading can help make it easier for you to trade crypto, especially alt-coins.
(Incidentally, if you’re looking for a quick and cheap way to on/off ramp between fiat/crypto it can now be done quite easily at or close to zero cost via stablecoins - for more info we encourage you to take a look at our previous article on stablecoins at https://www.binance.com/en/blog/294416239327625216/Stablecoins-An-Efficient-Fiat-Gateway-Into-Crypto)
What is OTC trading?
When you trade cryptocurrencies, there are two main ways to do it - either via exchanges or over the counter (OTC).
Exchanges (like Binance) act as a marketplace that brings in liquidity from traders from around the world. On an exchange, you’re able to see an aggregated order book (a list) of bids (where people want to buy) and offers (where people want to sell). You can see exactly how much you can buy or sell at each price, and each trade is clearly published for everyone to see. The exchange takes care of wallet management, security, KYC/AML and provides a safe and user-friendly platform for users to trade on.
In general, trading on exchanges is great as it is simple and transparent. The problem with trading on exchanges is that sometimes this transparency makes it difficult to trade huge amounts in one go without significantly moving markets.
For example, if you wanted to buy 50,000 MATIC (around 485 USDT), you can do that immediately on the exchange and pay 0.0097 USDT per MATIC. But if you wanted to buy 1,000,000 MATIC (around 9,700 USDT), there’s only 78,794.8 MATIC available at 0.0097, which means you’d have to pay a higher price for the rest of the coins. To get to 1,000,000 MATIC your last MATIC would cost you 0.00985, or a full 1.5% above the current market price. And that’s just for 10,000 USDT. If you wanted to buy 100,000 USDT or more, it just wouldn’t make sense to buy it on the exchange in one go.
Alternatively, you could put your large order in as a limit order. But this could take a very long time to fill, and just the act of placing in a large limit order to buy could raise prices as it’s a signal to other traders that someone wants to buy a large amount. This could result in the market “running away” from you and forcing you to update your limits regularly, which means you still end up buying higher than the original market price (after a lot of additional effort!).
This is where the OTC market comes in.
Unlike trading on an exchange, OTC trades are conducted directly between two counterparties. It’s the easiest way to trade a large block of coins in one go. Each trade is a bilateral agreement between a buyer and a seller - no one else sees the discussion, which allows you to discuss trading large sizes without fear of affecting the markets. The trade can be as simple or as customized as you like.
Why OTC?
OTC trading gives you access to a deeper liquidity pool than what is immediately available on the exchange order book. Simply put, it lets you trade in large block sizes (typically 20 BTC and above) at a reasonable price without moving the markets against you. An OTC desk would give you a single fixed price you can buy/sell your coins at. Note that it will almost always be worse than the current price in the market since it factors in two costs:
1. Market impact cost of trading your coins and other traders reacting to your trades.
2. Time cost of trading - the market can move against you while you are taking time trading ‘prudently’ without affecting the market too much.
This is particularly useful for when you want to buy that 20 BTC worth of an altcoin but you’d much rather get on with your life and not sit there for 10 hours constantly watching/clicking on Binance. Crucially it provides an additional source of liquidity for altcoins on top of what you generally see on the exchange.
Why trade with Binance Trading?
At Binance Trading, we try to combine the best of what Binance has to offer and general OTC trading. Binance as an exchange offers access to one of the deepest liquidity pools in the market, and as part of that ecosystem we are in touch with traders who can provide extremely competitive pricing and liquidity in not only BTC but also in altcoins - and not just the likes of XRP, BNB, and ADA, but also less liquid coins such as MANA, AION, and ENJ.
There are a number of advantages to trading with us:
1. Simple Process - The trading discussion happens on chat, and a trade can be confirmed in as quickly as 1-2 minutes from the time you reach out to us for a price. Once we agree on a price, we fully take care of the settlement process by moving the coins you’re selling out of your Binance account and the coins you’re buying in. You just need to make sure the coins are in your own Binance account - you don’t need to send coins anywhere or worry about phishing attempts or triple checking wallet addresses.
2. Fast Settlement - Quite often OTC desks will choose to settle trades in 24-48 hours, which means you won’t have access to your purchased coins until much later. And even when they’re ready to settle, you’d still need to wait for block times. This isn’t so bad if block confirmations are quick like on BNB Chain with 1-second block times, but BTC blocks can take over 10 minutes, and if your counterparty requires a few confirms then you could be waiting for another hour or more. With Binance Trading, settlement occurs in your Binance account and for the major coins it is typically done within minutes.
3. Reduces Counterparty Risk - With traditional OTC, trust is always an issue. There’s always a question of who sends first, and usually, the one who’s asking the price will be expected to send first, which means there’s a non-zero chance that the OTC desk will run away with your money. With Binance Trading, your coins stay in your account until we are ready to settle, and they are exchanged at the same time.
4. Reduces Market Impact and Increased Anonymity - While OTC trades are not actively published and don’t show up on exchanges when you trade with a regular OTC desk, you do need to send coins to them on the blockchain which is generally visible to everyone who is paying attention. So others would be able to see that you’re selling (and exactly when it happens) which may have a negative impact on the market. With Binance OTC, if the coins are already in your Binance wallet, settlement occurs inside the Binance ecosystem which means it will not go through blockchains or block explorers.
How can I get set up to trade with Binance Trading?
if you’re reading this blog, chances are you’re already set up to trade with us. You need to have a verified Binance account and access to a chat program such as Telegram or Whatsapp.
You can join our Telegram channel at https://t.me/BinanceOTC for a list of authorized traders you can speak with. Please reach out to one of us and we can confirm your account and get you set up to trade.