OTC TRADING VS P2P TRADING
Buying and selling cryptocurrencies has never been easier. It has mostly been a matter of joining an exchange, placing a buy or sell order for your preferred crypto, and voila! However, not every trade necessarily goes through a centralized exchange. You may have heard of other means of buying and selling cryptocurrencies such as OTC trading and P2P trading. You may have even been a party to one of these off-exchange trades — due to their common occurrences — without really giving it a critical look. So now that it has come to your attention, what are they? And how are they different?
OTC TRADING
Over-The-Counter Trading, otherwise known as OTC trading, is a medium through which prospective participants in the OTC market trade assets between each other in a more relaxed setting. This means that buyers and sellers are able to personally determine trades with parameters and prices they are able to agree on. Thus, the price quoted by one dealer can vary by a wide margin to the quoted price of another dealer. The personal exchange between the buyer and seller makes the details and pricing of the trade concealed from the rest of the market. OTC trading comes with a lot of flexibility not available on centralized exchanges, though it is usually more time-consuming. The risk that comes with OTC trading is that it is not very regulated, and the parties bear the risk of getting defrauded by the counterparty. Moreover, it might be quite difficult for the parties to know the best available price in the market, and they risk going into unfavourable deals without sufficient information.
However, OTC trading could be made to involve brokers. These are intermediaries that facilitate OTC trading by pairing buyers and sellers who match each other’s descriptions. These brokers also make sure to verify the identities and credentials of these traders, and could go as far as enlisting escrow services to carry out the trade. This goes a long way in improving the security of assets and funds involved in the trade, as well as eliminating the hassle of having to search for qualified counterparties.
Examples of large scale OTC trading platforms are OTC Pink Marketplace and OTCQX.
P2P TRADING
P2P is short for Peer-To-Peer. This form of trading involves using order books to match buy and sell orders from customers, much like centralized exchanges. The difference is the degree of personalization that goes into each order. Buyers and sellers can do as much as customize preferences as to payment method, order limit, fiat currency, location, etc. The matching system draws up a list of qualified selling orders for buyers to choose from based on their preferred parameters, and pairs a buyer to the seller whose order he chooses.
The specifications of the trade is already preset, and the buyer complies with it in filling the payment. The buyer’s assets are held in escrow the entire time, and are released once he confirms receipt of payment. P2P trading is usually more personalized and more cost-efficient compared to OTC trading; but do not possess the same levels of anonymity, neither are they conducive for very large trades.
DIFFERENCES
It is obvious that OTC trading and P2P trading are quite similar in quite a number of ways. The more personalized interactions and greater anonymity compared to centralized exchanges are major points of intersection. It can also be deduced from the foregoing that P2P and OTC trading differ over their matching mechanisms. While P2P uses order books to pair traders, OTC uses a broker or traders manually find each other. Moreover, OTC trading allows for more flexibility in trading and personal interactions; while P2P focuses on preset personalization, inclusivity, and cost-efficiency.
All in all, the differences between OTC and P2P trading methods do not in any way demean their individual capacities as viable alternatives to centralized exchanges. In fact, they are both so popular that exchanges are already incorporating them into their platform designs. With both so prominent, it all boils down to the user’s choice as to which better suits his style.
