If you are already investing in digital assets such as cryptocurrency, it’s likely you are using an exchange or an Over Counter (OTC) desk to facilitate your buying and selling. Many of the newer investors aren’t quite sure which one to use. It’s important to know the difference between the two because it can have an impact on your investment. An exchange is a marketplace for traders to buy and sell digital assets.
This includes cryptocurrencies and NFTs. Exchanges support many different coins and provide the current market prices of those they list. Buyers can generally use fiat or transfer another digital asset to fund their account. Once they fund the account, they can exchange the fiat for a digital asset or use one digital asset to swap for another.
All prices and fees are set on the exchange. An exchange is a great place for investors who are relatively new to the world of digital currencies and want to avoid paying higher fees and commissions. It also boasts a wide range of digital assets available.
OTC desks are businesses that have a broker who sets up investment transactions between two individual parties and does not take place on an exchange. Unlike digital exchanges, where the buyer and seller may be pseudonymous, OTC trades are done in buyer-seller networks where both parties conduct business directly with each other. OTC desks primarily facilitate transactions such as crypto to fiat and fiat to crypto, however, some support crypto-asset swaps only if liquidity is adequate.
The investor using this platform usually holds substantial amounts of digital assets and wants to trade large amounts in a single transaction. They also prefer the ability to keep their transaction private.
Another key differentiator between these two platforms is slippage. This occurs on an exchange when a price can change in the amount of time it takes for the transaction to be completed. The amount of slippage usually does not have a big impact on small trades on an exchange, however, it could have a massive financial impact on large trades done by whales or institutional investors. Large trades on an exchange can also impact the liquidity of the asset. Since trades on an OTC desk take place
independently of the market, they don’t directly affect the liquidity of the asset. The trade has a fixed price agreed upon and is executed at that value, therefore liquidity and slippage are not considerations when trading on an OTC desk.
While there is more to trading on exchanges and OTC desks that should be considered, the information shared here should be adequate as a starting point for new investors. Whether you are just starting out or have been trading for some time, minnows and whales are equally invited and welcome to check out the exchange and market platforms currently being offered by Fabriik.
