From the Hyobi blog.
OTC stands for over-the-counter. It is a decentralized market in which you can trade stocks, commodities and currencies between two parties without the use of a central exchange. Trading is conducted electronically with the aid of a broker or dealer. Dealers act as intermediaries between buyers and sellers by quoting prices for securities, currencies and other financial products. An OTC market generally has less transparency than an exchange and also fewer regulations, which is why assets often come at a premium.
As mentioned, there is no central exchange in OTC trading. Instead, the buying or selling takes place directly between an investor and the OTC desk – a business devoted to trading a particular asset class. OTC enables the buyer and seller to mutually agree on the price of an asset and then make the transfer in their preferred way. Crypto investors often turn to Over-The-Counter (OTC) desks when they want to buy or sell large amounts of tokens or fiat.
Solving a problem
Placing large orders on public exchanges would be difficult, and it would heavily disrupt the prices. Since order books are mostly governed by the asks and bids of other traders, there simply wouldn’t be enough counterparties available to make such large trade orders feasible. For example, if a trader wanted to buy 100 BTC from an exchange, he would have to buy it from multiple sellers with different prices which would cause slippage – the trade execution price would becomes a lot higher or lower than initially intended, resulting in losses for the trader. OTC resolves the problems related to big trades by executing the whole order at once using only one price.
The Huobi OTC desk
The desk does not necessarily buy or sell the asset itself, but functions as the middleman who finds the counter-party for the desired trade. It is also responsible for receiving and sending the right amount of tokens or fiat to the correct addresses. The Huobi OTC desk offers its service to institutional investors and in the form of peer-to-peer (P2P). In addition, OTC eases an investor’s worries about potentially losing funds. The Huobi OTC desk is the processor of transactions and so the investor does not have to get involved or worry about this step. The risks are minimal and so are the stress levels.
Clean money = safe assets
OTC as a market has many benefits and use-cases, but is still sometimes associated with bad actors and risks. A bad actor is a person or organisation whose actions are harmful, illegal or just morally wrong, and of course they exist. However, Huobi has worked hard to eliminate such threats.
The Huobi OTC desk has a strict regulatory framework and therefore provides a safe trading experience for professional and institutional clients. It is licensed by the Dubai Multi Commodities Centre (DMCC) and also holds a Distributed Ledger Technology (DLT) licence from the Gibraltar Financial Services Commission. The desk manages to filters the bad actors from the platform with its strict signup process. To become an OTC client, an investor must complete an onboarding process and obtain the highest verification level. The completion requires various documentation like Proof of income, Proof of Residency, and Government ID. Whilst these security measures are straight forward for investors with honest intentions, they act as a filter and push problematic cases like money laundering and scammers away.
In addition to developing a safe platform for transactions, Huobi OTC encourages its clients to join them in preventing scammers and rule-breakers from disrupting the market. Huobi OTC has set 50,000 HUSD in a trade protection program and guardian plan, meaning anyone can be rewarded with HUSD by reporting suspicious activities like abnormal ads or misleading instructions. This should deter those with bad intentions from using the platform. If they somehow get through the verification, the protection program contingency plan means they’ll be swiftly removed. For more information about Huobi’s OTC institutional service just follow the link.
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This article came directly from the Hyobi Global blog, found on https://blog.huobi.com/2023/07/07/what-is-an-otc-market-2/