What is an OTC Desk?
Over-The-Counter or "OTC" desks are nothing new in financial markets. An OTC desk is a platform where individuals or institutions can buy or sell cryptocurrencies directly with each other, without going through a traditional exchange. OTC desks act as intermediaries between buyers and sellers, providing them with liquidity and facilitating large trades that may not be possible or practical on a public exchange.
In the crypto market, OTC desks fulfil the same function, and one of the largest in Africa is operated by FiveWest.
Moneyweb asked CEO Omer Iqbal why crypto investors should consider buying or selling cryptos through an OTC desk rather than a crypto exchange.
“OTC desks are really like private banks, where people who want to place large orders can do so discreetly and get the orders filled rapidly without having to break them up into smaller bite-sized chunks, which creates price slippage,” Iqbal says.
“Our OTC desk is not for everyone. Most people wanting to buy small amounts of bitcoin, ether, or other cryptos will do so through a crypto exchange. Bigger orders would be better placed through an OTC desk such as ours,” he adds.
Who are the typical customers of OTC desk services?
Iqbal says these are institutional and high net worth clients for the most part, who might want to keep their orders away from the prying eyes of traders on crypto exchanges.
“We’ve got vast expertise in handling large crypto trades, so that minimises any potential price slippage that could occur on an exchange,” says Iqbal.
He says FiveWest is more properly described as a fintech company than a crypto services provider – though it does that too. Apart from the OTC desk, it offers clients the ability to profit from crypto arbitrage (buying crypto assets cheaper on one exchange and selling them for a profit on another), treasury solutions (storing company cash reserves in US dollar-backed stablecoins to protect against currency depreciation) and recently launched Blockshop, a crypto payment gateway solution.
Are there any other good reasons to trade cryptos through an OTC desk rather than a normal exchange?
In fact, there are seven good reasons, says Iqbal.
7 reasons why you should buy cryptos through an OTC desk rather than an exchange
1. Minimise price impact:
FiveWest's crypto OTC desk provides greater liquidity compared to traditional exchanges. This is particularly beneficial for institutional investors and high net-worth individuals who may be looking to conduct large trades without affecting the market price. Normal exchanges typically lack the liquidity to execute sizable transactions smoothly.
2. Reduced slippage:
Slippage is the difference between the expected price of a trade and the executed price, and it can significantly impact the profitability of a transaction. Someone wanting to purchase (or sell) 50 or 100 bitcoin on a normal crypto exchange may wait days for that order to be fully executed, and it would be filled at many different prices.
3. Faster settlement times:
FiveWest offers expedited settlement times, ensuring that your trades are completed swiftly and securely. Traditional exchanges can sometimes experience delays in settling trades due to operational and other inefficiencies. This can be frustrating for clients trying to capitalise on time sensitive market opportunities. Iqbal says FiveWest's OTC desk offers expedited settlement times, meaning trades are cashed up and the proceeds (whether in cash or crypto) secured in record time.
4. More settlement options:
Relying on its own facilities and partner network, FiveWest is able to settle trades in different global currencies, or cryptocurrencies, across any blockchain.
5. Enhanced privacy:
For institutions and high net worth individuals, confidentiality is crucial when it comes to cryptocurrency trading. By using the OTC desk, large transactions will be kept off public order books, which means trading activity remains discreet and less susceptible to being targeted by other market participants.
6. Customised solutions:
Clients have different reasons for acquiring or selling cryptos, and many need personalised service and individualised trading solutions. This level of customisation is not available on traditional exchanges, where you are limited to pre-defined trading tools and interfaces.
7. Access to experts:
FiveWest has arguably the largest pool of crypto talent in SA, and that’s a critical lever when it comes to developing a crypto trading strategy. Clients also require specialised insights into the broader crypto ecosphere, such as tax and legal implications, the risk profile one can expect when investing in cryptos, and the evolving number of uses for cryptos.
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