- In contrast to centralized exchanges, OTC platforms don’t require an order book to get transactions executed but rather source liquidity from an aggregated pool of electronic liquidity providers and market makers.
- OTC trades account for a very large portion of daily crypto transactions, over $12 billion Bitcoin is transacted daily via OTC markets.
- ‘Secure Digital Markets’ (SDM) is a leading OTC desk that deploys an ‘electronic communication network’ (ECN) to provide deep liquidity to customers in over 60 international markets.
Over the years, Over The Counter (OTC) trading has served as one of the most popular ways to trade a large variety of digital assets. A large majority of Bitcoin trades happen within the OTC markets. Amidst the rising market uncertainties, OTC trades seem to have recorded the highest trading volume so far. There are some nuances to making an OTC trade that we’d like to go into.
Crypto OTC market is becoming increasingly popular in recent times due to its high layer security and reliability compared to traditional crypto exchanges. OTC provides traders with a more private trading environment than centralized exchanges. In a typical OTC market, a broker finds both sellers and buyers, verifies their identity and matches their contract before closing the deal. However, it should be noted that SDM has developed efficiencies that make this matchmaking process far smoother.
How OTC Trading Works
Most retail investors are used to regular centralized exchanges. To have a better picture of how an OTC platform works, you might have to view an OTC platform as one that doesn’t require an order book to get transactions executed.
Making an OTC trade requires that a client pre-fund the account as part of risk management, and then the system pairs buyers and sellers with the help of a broker. While making an OTC trade, your funds are never managed by an intermediary or a third party.
But one thing to always keep in mind is that an OTC brokerage verifies and stamps the identity and trust of trading participants before trades are executed. Prior to any transactions executed with SDM, we perform enhanced due diligence to make sure all clients are in compliance with all KYC and AML regulations. Dealing with OTC brokers takes a lot of time to establish trust. However, this is a key element required to avoid fraud issues while making an OTC trade.
Common Pitfalls In Making An OTC Trade
One major issue plaguing the OTC markets is the lack of transparency and proper regulations. Most OTC companies provide very little information about their mode of operations, which most times are likely to mislead traders. This makes it difficult for most traders to identify loopholes within an OTC brokerage.
Due to the minimal regulations required to run a brokerage platform, traders might not be able to make informed decisions regarding a particular broker in terms of market manipulations as easily as one would have thought. SDM does not trade against clients or engage in proprietary trading, which removes any potential conflicts of interest. It is also important to note that SDM has their MSB (Money Services Business) license.
Another major pitfall most traders are likely to face while making an OTC trade is the low trading volume associated with most brokerage platforms. This low trading volume translates into a large difference between the ‘Bid’ and the ‘Ask’ price. This could be a major dilemma for investors as such trades automatically result in the investor making a loss position depending on the degree of the percentage difference.
Things To Watch Out For When Choosing A Brokerage Service
As already stated, investors/traders must always do due diligence when adopting an OTC platform. Liquidity is a main consideration when seeking services of an OTC desk. Highly liquid platforms are likely to have a wide range of user base across major countries and markets. By achieving this, users can be less worried about the challenge of having a wider ‘spread’ (the difference between the bidding and asking price).
Among today’s brokerage platforms, Secure Digital Markets (SDM) is working very hard to meet traders’ expectations. Secure Digital Market is a North American based asset brokerage that deploys state-of-the-art technology to provide high liquidity to traders in over 60 international markets.
SDM was founded on the strength of a cutting edge technology that not only provides an OTC market but also offers a flexing lending product, secure custodian services, and treasury management as well.
By design, Secure Digital Markets is the first asset brokerage firm to have looked deeply into solving the issue of liquidity in OTC trades. To achieve this, SDM deploys an electronic communication network (ECN) that ensures high liquidity by accessing a large network of international markets.
The company has also been able to solve the issues of transparency by making sure that traders can verify trading parties before making an OTC trade. The company has also provided comprehensive information about its services and mode of operation via its official website. This ensures that traders are properly informed before making an OTC trade.
The rising popularity of OTC trades and the current challenges being faced by OTC traders are the major motivations fueling the innovations behind the ‘Secure Digital Markets’ brokerage services. As the global market continues to evolve, the system provides traders with a wide range of trading options with an elegant market interface and sophisticated trading tools.
Interestingly, SDM seems to have taken the lead in Canada offering liquidity for traders, investors alike through its brokerage service. Currently, the company is exploring other global markets to expand its current portfolio of the 60+ international markets.