over the counter trading

What Is Over-the-Counter (OTC) Trading?

Over-the-counter (OTC) trading refers to the buying and selling of crypto assets outside the exchange’s order book. An order book is essentially an internal “buy-sell list” managed by the exchange, where trades are automatically matched by price and quantity. In OTC trading, buyers and sellers negotiate prices and payment methods directly or via a platform, often on a peer-to-peer (P2P) basis.

OTC transactions can involve fiat-to-crypto exchanges (e.g., buying USDT with CNY) or crypto-to-crypto swaps (e.g., exchanging BTC for USDT). The most common OTC setup is the P2P model, where the platform provides identity verification, escrow services, and dispute resolution channels to reduce counterparty risk.

Why Does OTC Trading Exist?

OTC trading meets the needs of users who require large-volume, customized deals or local payment methods. Many traders prefer to use local bank transfers or specific payment options to buy or sell crypto assets, but traditional spot trading on exchanges only supports crypto pairs and does not directly support fiat transfers.

Additionally, placing large orders directly into the order book can cause “slippage” (where executed prices deviate from expectations), whereas OTC allows for a single transaction at a pre-agreed price. In certain countries or during particular times, users may need compliant channels for fiat on/off ramps, making OTC a preferred solution.

How Does OTC Trading Work?

OTC trading typically involves three parties: the buyer, the seller, and the platform. The platform does not match orders directly but offers listing services for advertisements, identity verification, escrow (holding sellers’ assets temporarily), dispute resolution, and risk controls.

Step 1: The buyer selects a suitable ad or seller, confirming the crypto asset, fiat currency, amount, and price.

Step 2: The platform requires completion of KYC (Know Your Customer) verification and risk checks before allowing orders to proceed.

Step 3: Once an order is placed, the seller’s crypto is held in escrow by the platform, ensuring the seller cannot withdraw assets during payment processing.

Step 4: The buyer makes payment using the agreed method and submits proof of payment in the order. Common payment methods include local bank transfers or regulated third-party options.

Step 5: After confirming receipt of funds, the platform releases the crypto from escrow to the buyer. In case of disputes, either party can file an appeal, and the platform will arbitrate based on provided evidence.

How To Use OTC Trading on Gate?

On Gate’s OTC platform, users can buy or sell major stablecoins and crypto assets using local fiat currencies. Here’s a typical process (e.g., buying USDT with CNY):

Step 1: Complete account registration and KYC. Identity verification is required for anti-money laundering (AML) and compliance purposes.

Step 2: Go to the “OTC Trading” page, choose your fiat currency (e.g., CNY) and target crypto (e.g., USDT), and filter ads by price, limits, and payment methods.

Step 3: Select an ad and place an order. The platform will escrow the seller’s USDT. You must complete the bank transfer within the specified time and upload proof of payment as required by the ad.

Step 4: After the seller verifies receipt of payment, Gate releases the USDT to your account. You can monitor order status and timelines in your trade details.

Step 5: If there’s a dispute (e.g., seller doesn’t release funds or payment is not received), you can file an appeal via the order page. Customer support and risk management teams will resolve issues based on evidence.

How Is OTC Pricing Determined?

OTC prices usually reference real-time exchange rates from spot markets, with adjustments for local payment costs and risk premiums. “Premium/discount” refers to price increases or decreases compared to exchange rates; these are influenced by payment fees, liquidity speed, holidays, and demand fluctuations.

Sellers consider local transfer fees, time costs, and credit risks; buyers weigh convenience and order speed. Larger orders may secure better rates as counterparties may offer discounts for block trades.

What Are the Differences Between OTC and Spot Trading?

OTC trading is peer-to-peer negotiation and payment, focusing on local payment methods and escrow processes. Spot trading relies on order books managed by automated systems, offering instant price transparency and fast execution.

OTC trading is better suited for fiat on/off ramps and large or custom deals. Spot trading is ideal for frequent trades and strategy execution (such as limit or stop orders). Many users combine both: acquiring USDT via OTC first, then swapping for other cryptocurrencies on spot markets.

What Are the Risks of OTC Trading?

Key risks include counterparty default, payment account risks, price volatility, and fraud.

• Counterparty default: Private deals conducted outside platforms lack escrow and dispute protections, making losses more likely. Always complete payments and communication within official platform orders.
• Payment account risks: Some banks or payment channels may flag unusual incoming payments. Use accounts that match your KYC identity; avoid third-party or proxy accounts.
• Price volatility: Market conditions may change between placing an order and confirming payment. Set reasonable time limits and price protection to avoid delays.
• Fraud and phishing: Common scams include urging you to transact off-platform, faking payment screenshots, or sending phishing links. Only operate within platform chats and order processes; verify receipt before releasing funds.

What Should You Prepare for OTC Trading?

First, ensure you have a compliant account with completed KYC. Identity verification increases your limits and enhances appeal effectiveness.

Second, use secure payment methods. Prefer bank accounts or regulated tools that match your verified name; never share account info with strangers.

Third, maintain risk awareness and keep records. Retain transfer receipts and chat logs; file appeals promptly if issues arise.

Fourth, assess prices and timing. Know your target price range and preferred trade window; avoid impulsive trades during extreme market swings.

Who Should Use OTC Trading—and When?

OTC trading is suitable for users who need fiat on/off ramps, parties executing large block trades, or those preferring specific payment methods.

In cross-border scenarios, some users obtain stablecoins like USDT via OTC before allocating assets on exchanges. For institutions or OTC market makers, large trades often happen off-book to minimize market impact.

What About Compliance and Future Trends in OTC Trading?

Compliance requirements generally include KYC (identity verification) and anti-money laundering checks. Regulations differ by country but increasingly require both platforms and users to meet compliance obligations. As of 2024, the EU’s MiCA regulations have phased in requirements for stablecoins and service providers; many jurisdictions also stress suspicious transaction reporting and record retention.

Looking ahead, expect stronger compliance audits, improved escrow/dispute mechanisms, and tighter integration between fiat on/off ramps and compliant payment channels. For users, compliance and security will become top criteria when choosing platforms or counterparties.

Summary & Next Steps for OTC Trading

OTC trading offers convenient solutions for large-volume trades and local payment needs—it serves as a crucial bridge between fiat currencies and crypto assets. Understanding how it works (escrow, fund release, dispute resolution), how prices are set (market references plus risk premium), and what compliance requires (KYC, AML) can significantly reduce your risk exposure.

Next steps: choose a compliant platform (such as Gate’s OTC section), complete KYC procedures, use verified payment methods matching your real name, and keep all transactions within official platform orders. File appeals promptly if issues arise—always prioritize security and compliance.

FAQ

What Is the Difference Between On-Exchange and OTC Trading?

On-exchange trading takes place on centralized exchange platforms with standardized transactions—your counterparty is the exchange itself; pricing is transparent and updated in real-time. In OTC trading, buyers and sellers negotiate terms directly; prices are mutually agreed upon, making it more suitable for large block trades. Think of on-exchange as shopping at a supermarket—standard prices—while OTC is like negotiating privately with a vendor.

Why Are Large Trades Better Suited for OTC Instead of On-Exchange?

Large trades executed on-exchange may cause slippage or even impact market prices due to limited liquidity in order books—leading to higher trading costs. OTC allows buyers and sellers to communicate directly to agree on fair prices and settlement terms while minimizing market impact costs. Gate’s OTC service supports high-volume crypto transactions with relatively stable pricing.

How Are OTC Trade Prices Set? Are They Cheaper Than Market Rates?

OTC prices are determined through direct negotiation between counterparties—market rates serve as a reference point but are adjusted based on trade size and current supply-demand conditions. Large-volume deals may secure better pricing but depend on negotiation skills and market circumstances.

What Happens If My OTC Counterparty Defaults? Are There Safeguards?

OTC trading carries higher risks than on-exchange trades; establishing trust or using escrow arrangements in advance is essential. Reputable platforms like Gate’s OTC service offer merchant verification and trade histories; ultimately, you must still exercise caution when choosing counterparties. Prefer merchants with high ratings and strong transaction volumes.

Can Individual Users Participate in Gate’s OTC Trading? What’s the Process?

Yes—Gate supports individual users in OTC trades. The basic process is: complete identity verification → select a counterparty or post a trade request in the OTC section → negotiate price and terms → confirm order details and transfer funds as agreed → counterparty releases crypto to complete settlement. It’s advisable to start with small trades to become familiar with the workflow.