What an OTC Desk Is and When You Would Use One
Above a certain size, buying on an exchange works against you. What a desk does instead, and how to tell when you have crossed that point.
What this covers
OTC means over the counter, which just means the trade happens directly between two parties rather than on an open market. For crypto, it is what you use when your order is too big for the exchange. If any of this seems abstract, a crypto OTC trading platform shows the same thing with actual figures attached.
What goes wrong with a big order
An exchange matches your order against whatever people are offering. The best prices get used first, then the next best, and so on.
A small order takes the best prices and finishes. A large one works its way down through worse and worse prices, and the average you end up with is meaningfully worse than the price you saw.
Two things make it worse. Everyone can see the order filling, so people adjust. And the supply that replaces what you consumed arrives at the new, worse level.
What a desk does
You ask for a price for a specific amount. The desk gives you one price for the whole thing. You accept or you do not.
Nothing appears publicly. The market does not see it until afterwards, if at all.
You are buying certainty and privacy. The desk takes on the job of sourcing or unwinding the position, and the margin it quotes is payment for that.
How to know you have crossed the threshold
Look at the exchange and add up how much is on offer within about half a percent of the current price.
If your order is a small fraction of that, use the exchange. If it is a large fraction, you are the one moving the price and a desk will probably be cheaper. Businesses face the same thing from the other side, which is what a corporate crypto wallet with segregated accounts is for.
There is no fixed number. For popular assets on big venues it is high. For anything less traded it can be surprisingly low.
Comparing desks
Convert the quote into a percentage against the market price at that moment. That is the only comparable figure.
Ask two or three at the same time, because a quote only lasts a short while and comparing one after another compares different moments.
The part that is not about price
Who sends first. Unless there is a mechanism preventing it, one side has to go first, and that is a real risk with an unfamiliar counterparty.
Options are settlement through a regulated company holding both sides, a simultaneous exchange arrangement, or credit terms once a relationship exists.
For a first trade with someone new, settlement through a regulated intermediary is the safe choice, and it is worth a slightly worse price.
The common expensive mistake
Splitting a large order into many small ones on an exchange to avoid the desk’s margin.
Each piece moves the price a little and the market does not reset in between. The total impact usually costs more than the desk would have. For the real numbers rather than examples, Collect & Exchange publishes them.