Definitely connected to exchanges, that's where the best price comes from and where the probability for profit increases. OTC brokers will execute trades through these exchanges and make a profit by doing so. I mentioned Bitfinex because they offer the best service any
crypto exchanges does when it comes to server response time, liquidity, uptime and the most important factor, server co-location.
Server co-location is important for OTC brokers because of the following reason:
1. It helps execute trades faster than other traders.
Why is that important? The faster the trade the better the price you get. Here's an example, it takes from 0.1 to 0.4 seconds to blink, Bitfinex co-location helps you execute trades 100 times faster. The fastest one gets the lowest price, others get higher prices. Your buy takes price higher, if it goes up by 10 USD someone else who was slower will buy 1 BTC for 10 USD more.
That's not much, unless you're executing hundreds of millions of USD, at 500,000,000 the current BTC price gets you ~25,781 BTC. 10 USD cheaper and you get ~ 25,794. 13
Bitcoin more. Even at smaller trades, when you're trading 5,000 times or even 50,000 times a month those small numbers can add up to millions.
You're right in that OTC connects client A with client B but most of these cases involve exchanges. It usually is people who are up a lot who want to sell OTC, no slippage at all. When there's only an A and no B the OTC desk will distribute the coins in the open market. Slowly they sell it all, making a profit, as long as there's demand.
Say A wants to sell at Bitfinex rate right now, price is at ~ 19,194 (because of 3AC dumping everything to save their a*s). OTC buys there, sells at
Binance for ~ 19,333. Instant profit. Or B wants to buy from OTC, OTC buys at Bitfinex, sells it to them for Binance price, profit.
I'd like to apologize for the mess I wrote, at least it is a mess to me, I have difficulties in writing whatever is in my brain and it probably confuses you. Hope this helps.