How to Trade Crypto OTC Smartly
OTC the counter trading is trading that involves just two parties without an exchange or intermediary in the middle. There is the buy side (usually the trader) and then the sell side (usually the trading desk). The OTC desk does not pass on trades to third party liquidity providers, but takes on the other side of the trade, thus taking on the exposure themselves.
Whereas in Forex and CFD trading, which is heavily regulated, the OTC crypto market is much newer and the majority of exchanges or peer-to-peer trading platforms are as yet unregulated.
Regulation in this market has just not yet been implemented. Exchanges and wallets can become voluntarily regulated in certain jurisdictions, however there is not a sweeping rule that covers the industry and its participants. That means the high level of protection afforded by centralized online brokers is not necessarily the case with the crypto trading platforms.
So how can a trader feel safe and protected in this market?
Some classical brokers allow traders to buy crypto outright within a regulated framework. Coinbase is licensed in the US, and it is worth trading with one of the larger exchanges to know your funds are protected, and that the broker is not exposing themselves to too much risk.
Check for safety features implemented by the exchanges, such as 2-factor authentication, and look into whether they have faced serial attacks of cybercrime. Most exchanges and wallets have at some point, Coinbase has not.
Zero tolerance to illicit gains
The cryptos, not least Bitcoin, have been somewhat of a haven for money launderers trying to clean their ill gotten gains, but now many exchanges are standing up and saying “not here!”. LocalBitcoins is a good example of an exchange that has a zero tolerance policy towards illicit funds.
Another way to protect your funds when moving cryptos is by using escrow services, so you know that you are going to receive your cryptos once you send the money. This is a service that more exchanges are now offering. ethbox is a decentralized project that allows users to transfer funds safely. It negates mistaken transfers to wrong addresses by keeping funds in escrow.
Mistaken transfers account for a huge amount of money each year, often with the sender unable to claim back his or her mistaken funds eg. when sending to the wrong address. ethbox offers protection from mistakes like these.
When trading crypto online, conduct research into the exchange or wallet you intend to use. Find out if they have regulation or protection for their users, and also try to speak to customer service first. If they have no customer service, then this can be a warning sign. Testing out the customer service first often proves to be a good way of seeing how smooth a company really is.