Last updated: December 24, 2025
What Is OTC Trading and When It Makes Sense in Crypto
Not all crypto trades happen on public exchanges. When trade size becomes large enough, placing orders directly into an order book can move price, increase costs and reveal intent.
This is where OTC trading comes into play. OTC, or over-the-counter trading, allows participants to execute large transactions away from public order books, using a different execution model entirely.
What OTC Trading Actually Is
OTC trading involves executing trades directly between two parties or through an intermediary, rather than matching orders on an exchange’s public book.
- Price is agreed privately between counterparties.
- Execution happens off the public market.
- Order books are not directly affected by the full size.
The trade is real, settled and final, but it does not appear as a visible order consuming liquidity on an exchange chart.
Why Large Traders Avoid Public Order Books
Public exchanges are transparent by design. While this benefits price discovery, it creates challenges for large trades.
- Large orders can move price against the trader.
- Other participants may try to front-run visible size.
- Execution costs increase as liquidity is consumed.
OTC trading reduces these problems by separating large execution from the visible price formation happening on public books.
How OTC Trades Are Priced
OTC prices are typically derived from reference markets. These can include:
- Spot prices on major exchanges.
- Volume-weighted average prices (VWAP).
- Agreed spreads based on size, volatility and liquidity.
The goal is fairness and predictability, not speculation or speed. Both sides know in advance how price will be determined.
When OTC Trading Makes Sense
OTC trading is not for every trade. It becomes relevant when certain conditions are present:
- Trade size is large relative to normal market liquidity.
- Execution discretion and low visibility are important.
- Price stability and average fill matter more than immediacy.
For small trades, public exchanges are usually more efficient. OTC exists to solve a size and discretion problem, not a convenience problem.
OTC Trading vs Exchange Execution
The key difference between OTC trading and exchange execution is visibility.
- Exchange trades contribute directly to price discovery.
- OTC trades transfer risk without obvious public signaling.
- Exchanges prioritize transparency, OTC prioritizes discretion.
Both play a role in healthy markets. They serve different needs and different types of capital.
Does OTC Trading Move the Market?
OTC trades do not directly move public price charts. However, their effects can appear later if positions are hedged, unwound or managed on exchanges.
This is why markets sometimes move without obvious on-chart causes. The activity may have started off-market and only become visible when risk is redistributed.
What Retail Traders Should Understand About OTC
Retail traders rarely use OTC desks, but understanding OTC trading helps explain why markets behave differently than expected.
- Not all meaningful volume appears on charts.
- Large capital often moves quietly and in advance.
- Price stability does not always mean inactivity or lack of interest.
Key Takeaways From This Module
- OTC trading executes large crypto trades outside public order books.
- It reduces market impact and preserves discretion for both sides.
- OTC prices are derived from public markets, not disconnected from them.
- OTC activity can influence markets indirectly over time as positions are managed.
Frequently Asked Questions
Is OTC trading only for institutions?
OTC trading is mainly used by large participants, but access depends on trade size and counterparties, not only on formal institutional status.
Are OTC trades regulated?
Regulation depends on jurisdiction and counterparties. Reputable OTC desks typically follow strict compliance standards, but they operate under different frameworks than public exchanges.
Why don’t OTC trades show on charts?
Charts reflect orders and trades executed on exchanges. OTC trades occur outside those order books, so they do not appear as individual candles or prints, even though they can still influence overall market positioning later.