Over-the-counter (OTC) trading is an alternative transaction method for buyers and sellers seeking to negotiate large-volume cryptocurrency transactions without using a public exchange.
For individuals and institutions interested in stable fiat/crypto on and off ramping, or moving significant amounts of crypto, OTC trading allows a more secure exchange without the risks of volatile and fast fluctuations in exchange rates.
This guide is a comprehensive look into how crypto OTC works, why some people use this as an alternative, and how to get started with OTC in Canada.聽
First up, let鈥檚 cover the basics. OTC, or 鈥渙ver-the-counter鈥 trades, occur between two parties without needing a public exchange. Instead of relying on open markets to set prices, buyers and sellers in OTC trading agree on the terms themselves.
This type of trading can occur with many forms of currency but is popular in the crypto space where large transactions might otherwise disrupt and influence prices. When buyers and sellers conduct crypto trading OTC, they avoid price slippage and losses associated with the often wild volatility that comes with public trades.
So, what does OTC mean in crypto specifically? It鈥檚 a private way to move significant volumes of cryptocurrency without adversely affecting the market. OTC trades typically take place through an 鈥OTC desk,鈥 which is essentially a broker that facilitates the deal.聽
Whether it鈥檚 Bitcoin, Ethereum, or any digital asset, OTC trading means more control, better privacy, and greater flexibility for high-net-worth individuals and institutions.
Before moving on, it鈥檚 important to distinguish between OTC, which is negotiated with a professional, and peer-to-peer (P2P) trading.聽
While both involve negotiation and execution of the deal, with P2P, individuals trade directly with each other using public platforms.聽
In contrast, OTC desks are professional intermediaries that manage transactions for you, safely ensuring obligations are fulfilled. OTC transactions are generally significantly larger than the smaller trading amounts performed over P2P, and have minimum transaction amounts the crypto desk is willing to confirm.
With OTC and crypto exchanges, trading fiat-to-crypto and crypto-to-crypto are both possible. But this is where the similarities end.聽
On traditional exchanges, the market supply and demand determine the prices, and liquidity is shared amongst all participants. With OTC desks, liquidity is actually tailored to the needs of both buyers and sellers, ensuring that these larger trades aren鈥檛 making notable impacts on market prices.聽
This makes OTC trading ideal for very high-volume trades where even slight market movement could invariably lead to slippage and volatility.聽
Beyond market stability, the biggest difference between public exchanges鈥攚hich provide full transparency via live order books鈥攁nd OTC is that trading over a crypto desk is private. It gives traders a discrete option, especially for those needing to trade millions of CAD for Bitcoin and other cryptocurrencies.聽
In Canada, this level of privacy and flexibility makes OTC a preferred method of trading for both retail and institutional clients.聽
The OTC desk is a specialized service that facilitates larger cryptocurrency trades outside public exchanges. These desks act as intermediaries between buyers and sellers and offer tailored or 鈥渨hite glove鈥 services that are private, secure, and cater to the high-volume market.聽
An OTC desk taps into deep liquidity pools to fill large orders and avoid affecting the public market and slippage. Typically serving high-net-worth individuals and institutions, OTC desks provide secure, efficient, and discrete means to move significant amounts of crypto.聽
OTC trading in Canada begins by first finding a reputable OTC desk (don鈥檛 worry, we cover this in detail later). After settling on a trusted OTC desk, traders specify the cryptocurrency and volume with which they want to trade.聽
The desk then searches for a counterparty who agrees with and meets your terms. Upon both parties agreeing on the price, trade is settled through escrow or a direct transaction.聽
This is important for traders wondering, does OTC affect market prices? The answer depends on the size of the order, the liquidity of the market, the trading venue and several other factors. Sometimes though OTC trades happen privately, off-exchange, and in this case don鈥檛 generally impact public market prices.
During the OTC trading process, OTC desks are your intermediaries, managing the trade, giving advice, and verifying both parties. It massively reduces counterparty risk and ensures the transaction is processed properly. As trades are agreed upon privately, the OTC trades are executed very fast, increasing trader confidence.聽
The benefits of OTC trading boil down to the following:
Although not anywhere near close to being deal-breakers, OTC trading still comes with a few risks you should be aware of:
There鈥檚 a lot more to OTC trading than what traders are typically used to when dealing with public exchanges. For those engaging in large-volume transactions, it's best to have a good understanding of the mechanics of an OTC trade before lining up a deal.聽
In this section, we鈥檙e going beyond just 鈥how to trade OTC鈥 and looking at the operation itself in more detail.
The very first step in OTC crypto trading begins with placing an order. Traders reach out to an OTC desk provider, or broker, and specify the volume and type of cryptocurrency they need to trade. A reputable desk provides a secure platform and communication channels like encrypted email or messaging services to ensure privacy and security.聽
Once placed, trade parameters such as the asset itself, price ranges, and preferred settlement methods are confirmed by the OTC desk. Trades are tailored to the buyer and seller, and components are kept discrete behind closed doors.
Upon receiving the order, the OTC desk will search for a counterparty. This search involves either matching a client鈥檚 order with their own liquidity pool or connecting with external networks of liquidity providers.聽
Reputable OTC desks should have deep relationships with other market participants to fill even multi-million dollar trades with no delay.
Matching typically occurs fast, sometimes within minutes, but how fast OTC trades depends on factors like depth of liquidity and the type of asset being traded. Smaller trades can expect to execute in minutes, but larger trades (we鈥檙e talking tens of millions) generally take longer as they require more concrete pricing and settlement terms.
Keep in mind that OTC hours of operation impact how quickly a trade can be completed, especially if you鈥檙e dealing with a desk that operates with international OTC desks.
As you have seen, the pricing of OTC trades in Canada isn鈥檛 determined by live supply and demand like traditional exchanges. OTC prices are negotiated directly between the two parties. The role of the OTC desk is to ensure that both the buyer and seller agree on a fair market price for the trade.
For example, Bitcoin desk operators might refer to the current market price on major Canadian exchanges but actually adjust it based on the size of the trade and their available liquidity.聽
If liquidity pools are too shallow or the market is quite volatile, the OTC price might incur a premium (or a discount) compared with the current market value. This is all performed to allow the parties to avoid the slippage they would otherwise face if trading on a public exchange.
Once an agreement on price has been reached, the OTC desk coordinates the transfer of assets. Trade execution will typically occur off-chain (in the case of Bitcoin or other cryptocurrencies) and is settled either directly between buyer and seller wallets or through a trusted escrow service.
For clients who demand security or for exceptionally high-volume trades, OTC desks should offer custody solutions that ensure the assets are stored safely until the trade is complete.聽
Typically, this involves cold storage or multi-signature wallets that provide industrial-grade security to minimize the risk during a settlement.
In Canada specifically, many Bitcoin OTC trading platforms offer the custody services mentioned above. This is due to Canada鈥檚 strict regulatory requirements and risk management concerns.聽
As mentioned, custody solutions include insured cold storage where assets are kept offline. Custodians provide insurance coverage to give peace of mind to high-net-worth individuals and institutions executing large trades.
If an OTC desk does use a custodial, execution time is greatly increased. So, if you鈥檙e looking for an efficient trade, consider selecting an OTC that conducts transactions non-custodial.
Canada has a strict and highly regulated asset and crypto trading environment. Luckily for traders, it is considered among the top 10 most in the world.
In this section, we鈥檙e covering the specific steps you need to get started with OTC in Canada.
Not all desks are created equal, so you will want to research factors like reputation, liquidity, and fees. Reputable OTC desks such as Newton OTC have guaranteed access to deep liquidity pools, and being a Canadian-only OTC, they know local regulations and frameworks inside out.聽
It鈥檚 also important to consider the desk鈥檚 track record, so take the time to look at customer reviews and ask within your own network for recommendations. Look for transparency in fees and pricing, as these vary wildly across platforms.
Before you can start OTC trading, you will need to prepare and provide documentation that verifies both your identity and financial status. This is in line with Canadian KYC () and AML () regulations, enforced by FINTRAC (the Financial Transactions and Reports Analysis Centre of Canada).
Expect to submit the following:
If you intend to make exceptionally high-volume trades, the OTC desk may also request additional financial information to assess your liquidity and creditworthiness. This is to satisfy Canadian regulations and protect both parties during the transaction.聽
Strict AML and KYC requirements set by dictate that the OTC Desk in Canada must mandate the passing of compliance checks to ensure you鈥檙e not involved in illicit activities.聽
This means that your identity will be verified before commencing any form of transaction with an OTC. Particularly for large trades, compliance with these regulations is absolutely non-negotiable. If you鈥檙e a new customer of any platform, expect initial delays during the setup phase while your documents are verified. Expect to have questions asked that will also screen for the involvement in any common crypto scams to ensure the safety of your funds.聽
Once cleared, you will be able to proceed with trades quickly.聽
Once documentation is approved and you have passed compliance checks, you can execute the trade. When using a reputable OTC like NewtonOTC, you can expect the process to be as follows:
Expect settlements to take less than one business day. If you are using an OTC with custodial services, settlements can take anywhere from 24 to 48 hours to complete.
In Canada, some OTC trading platforms require that high-net-worth individuals (HNWI) seeking to engage in large-volume trading must provide proof of their financial standing.聽
Under the Ontario Securities Commission, individuals must meet at least one of these聽 specific to be considered eligible:
Providing this documentation enables you to access higher trading limits and may allow you to receive more exclusive OTC Bitcoin pricing in some cases.
When trading in OTC crypto, expect costs to come up in the form of spreads and in some rare cases . These costs will vary depending on a few factors, including:
The main cost will be the spread, which is the difference between the buying and selling price of the asset. As OTC trades are negotiated directly, the spread can be wider than on a traditional exchange. This wider spread is generally considered acceptable as it represents the convenience, discretion, and security offered by the OTC desk.
Fees and commissions will also be charged by the OTC for facilitating the transaction. These fees vary from desk to desk and depend largely on the individual pricing structure and the trading amount.
Some desks provide tiered pricing depending on the volume of OTC transactions. Those conducting larger trades generally benefit from reduced fees.
The liquidity pool accessed by the OTC is another important factor to consider. Desks with access to deeper Bitcoin OTC supply are often able to offer better pricing. Those with less liquid assets could potentially come with higher fees due to increased difficulty in finding a counterparty.聽
Most OTC Desks like NewtonOTC have Smart-order-routing technology so that they can quote pricing from several market makers simultaneously and find the lowest bid or highest ask price for a given asset at any one moment in time.聽
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In Canada, cryptocurrency is for taxation purposes, meaning that it鈥檚 treated more like property than income. The Canada Revenue Agency (CRA) determines transactions based on whether they result in capital gains or business income.
These regulations are there to ensure that digital assets are traded transparently, safely, and in compliance with national financial laws. Here鈥檚 how these tax obligations apply to those who engage in OTC crypto trading.
Any profit made from selling crypto at a higher price is subject to capital gains tax. Capital gains tax in Canada has been changing in recent years and in order to best understand how to calculate your capital gains on your crypto assets you should consult a tax professional.
If your cryptocurrency trades are a part of a business, or if you鈥檙e frequently trading assets (this applies especially to high-frequency traders), you may find yourself being taxed as income rather than capital gains.聽
This is an important distinction to make, as income tax rates are higher than capital gains. It鈥檚 generally recommended to work with a tax professional to determine the point at which your crypto activity qualifies as business income or investment capital.
You are required to track any crypto purchases and sales to calculate and report these gains accurately. The 5000-S3 Schedule 3 Capital Gains (or Losses) form , specifically the 鈥淏onds, debentures, promissory notes, crypto-assets, and other similar properties鈥 section.
The CRA considers failure to report crypto trades as tax evasion, which can lead to penalties or even legal action.聽
Canada is one of the most crypto-friendly countries in the world, and OTC trading offers a truly unique opportunity to capitalize on that.聽
Whether it鈥檚 BTC, SOL, ETH, USDC or any cryptocurrency, if you have high-volume trading in mind, OTC is the best way to execute transactions with speed, privacy, and efficiency.聽
To ensure you鈥檙e getting the best experience, choosing a Canadian OTC desk is key. With deep liquidity, tight spreads, and a superior, best-in-class, white glove personalized service, NewtonOTC is a Canadian crypto favourite for clients trading C$30,000+.聽
Ready to start your OTC crypto journey? Join the platform that Canadians have trusted since 2018. Get started today.
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