How to become an OTC broker?

[forbidd3nknowl3dg3]

Hey everyone

I've been interested in OTC brokers, but I can't seem to find much information on them via traditional search engines.

What exactly is an OTC broker? And how would one go about exploring this field with a view to possibly run an OTC brokerage business over the internet? Any tips and/or resources?

Thanks all!!

 

[Martin Everson]

I've been interested in OTC brokers

Ok

What exactly is an OTC broker?

It stands for Over The Counter (OTC). It is just a broker whose method of trading is without use of an exchange. For example in bond trading or Forex trading it is done OTC.

Better detailed explanation is below:

Understanding Over-the-Counter (OTC) Trades

Over-the-Counter (OTC) trades refer to securities transacted via a dealer network as opposed to on a centralized exchange such as the New York Stock Exchange (NYSE).

www.investopedia.com

And how would one go about exploring this field with a view to possibly run an OTC brokerage business over the internet?

Firstly find out what it is you want the OTC brokerage to trade. Then read up on the product your trading. I think YouTube these days is a good place to start. Then finally look at how OTC brokers work.

 

[forbidd3nknowl3dg3]

It stands for Over The Counter (OTC). It is just a broker whose method of trading is without use of an exchange. For example in bond trading or Forex trading it is done OTC.

My interest in the OTC market sprang from reading about OTC brokers in the crypto market. I've read there is a decent amount of money to be made in brokering crypto deals. But when I try to find out more about how one goes about entering the market as a broker I come up short. I've read that a lot of these brokers operate on telegram, whatsapp, skype, etc? Is that true? How does one go about learning more?

 

[JohnnyDoe]

My interest in the OTC market sprang from reading about OTC brokers in the crypto market. I've read there is a decent amount of money to be made in brokering crypto deals. But when I try to find out more about how one goes about entering the market as a broker I come up short. I've read that a lot of these brokers operate on telegram, whatsapp, skype, etc? Is that true? How does one go about learning more?

It’s kind of asking “how to become a bank?”

 

[JackAlabama]

Hey everyone

I've been interested in OTC brokers, but I can't seem to find much information on them via traditional search engines.

What exactly is an OTC broker? And how would one go about exploring this field with a view to possibly run an OTC brokerage business over the internet? Any tips and/or resources?

Thanks all!!

Well you raise your initial capital and look for clients. Rinse repeat and grow.
Wont be easy if no one trusts you and you have not made a good rep yet.

 

[SusanSharandon]

I see a bunch of them on Telegram groups in Playa del Carmen indeed Join group chat on Telegram, there is another one specifically for OTC, I think it might be linked somewhere in that group. There are always people asking for buy/sell crypto and these guys provide liquidity and take a commission. The buyer/seller meets with them in person to do the transaction. Word of mouth keeps these guys in check, they often receive feedback on these groups. There's quite a bit of crypto loving expats in Playa del Carmen so that's a good place to start if you're a bit of a nomad. Or else you can search for groups in your region. I'm also interested too in learning more( but I'm not sure how the high volatility would impact the gains) so please keep in touch if you figure out more details.

 

[forbidd3nknowl3dg3]

Well you raise your initial capital and look for clients. Rinse repeat and grow.
Wont be easy if no one trusts you and you have not made a good rep yet.

Perhaps this is a silly question, but other than setting up a website, marketing, etc, what is the purpose of the initial capital? Isn't the whole idea that the OTC broker is an intermediary between a buyer and a seller? Wouldn't the focus be on networking and advertising your services?

 

[Martin Everson]

what is the purpose of the initial capital?

Transaction can go wrong, you can get sued etc. So you may need to absorb the loss. Hence why you need some form of loss absorption capital. Plus you need to cover operating costs, licenses etc etc.

 

[diatessaron]

My interest in the OTC market sprang from reading about OTC brokers in the crypto market. I've read there is a decent amount of money to be made in brokering crypto deals. But when I try to find out more about how one goes about entering the market as a broker I come up short. I've read that a lot of these brokers operate on telegram, whatsapp, skype, etc? Is that true? How does one go about learning more?

Telegram. E-mail. Discord. TeamSpeak (Only know one who uses this). Wickr. I use all but WhatsApp and TeamSpeak, mostly because they're more difficult to handle, there's not as much customization as I'd like.

My first ever thread was at <<snippet>>.org, took about 4 months for the first ever deal to go through, it was 2875 USD, this was in 2013. Then once that went through news sort of spread and within the next 2 months I made 2 large deals, one on the 400k and the other at 700k and about 70something much smaller ones. Was different back then, lots of people couldn't get crypto because of where they lived etc etc.

Depends on what you offer, most brokers ask for ID verification and that doesn't attract a good chunk of potential clients. I don't ask for ID verification so that has helped a lot, you can charge those clients more.

Lots of OTC desks have bought at lower prices and sell at higher ones, that's how they make money. You need to be able to execute good trades, so for example if someone hands you 500 million you can't just log into your Binance account and market buy 500 million, the slippage in this case would be crazy, at 1% that's a 5 million loss.

Just an OTC desk won't be profitable enough to bother with it, you should run a fund too. Anyways, to end this here as I don't really have time and it would take hours to write all that, Bitfinex the exchange would be your best friend. Read this: Bitfinex | Corporate & Professional, start from that page.

 

[forbidd3nknowl3dg3]

Telegram. E-mail. Discord. TeamSpeak (Only know one who uses this). Wickr. I use all but WhatsApp and TeamSpeak, mostly because they're more difficult to handle, there's not as much customization as I'd like.

My first ever thread was at <<snippet>>.org, took about 4 months for the first ever deal to go through, it was 2875 USD, this was in 2013. Then once that went through news sort of spread and within the next 2 months I made 2 large deals, one on the 400k and the other at 700k and about 70something much smaller ones. Was different back then, lots of people couldn't get crypto because of where they lived etc etc.

Depends on what you offer, most brokers ask for ID verification and that doesn't attract a good chunk of potential clients. I don't ask for ID verification so that has helped a lot, you can charge those clients more.

Lots of OTC desks have bought at lower prices and sell at higher ones, that's how they make money. You need to be able to execute good trades, so for example if someone hands you 500 million you can't just log into your Binance account and market buy 500 million, the slippage in this case would be crazy, at 1% that's a 5 million loss.

Just an OTC desk won't be profitable enough to bother with it, you should run a fund too. Anyways, to end this here as I don't really have time and it would take hours to write all that, Bitfinex the exchange would be your best friend. Read this: Bitfinex | Corporate & Professional, start from that page.

Thanks for this Diatessaron! I was under the assumption that OTC brokers are simply intermediaries between two parties -- buyers and sellers. I am curious to know how and why an exchange (i.e., Bitfinex) factors into this. Are OTC brokers usually connected to exchanges in some way? Is OTC brokering considered 'professional trading' as per the link you shared?

Thanks again Diatessaron!

 

[wellington]

Well you raise your initial capital and look for clients. Rinse repeat and grow.
Wont be easy if no one trusts you and you have not made a good rep yet.

Always considered this myself (having been in the space since 2010), issue i have is AML/KYC - you just can't screw up there, and if you do you might end up in prison, as well as bankrupt. -- most of the laundering goes through OTC's.

 

[diatessaron]

Thanks for this Diatessaron! I was under the assumption that OTC brokers are simply intermediaries between two parties -- buyers and sellers. I am curious to know how and why an exchange (i.e., Bitfinex) factors into this. Are OTC brokers usually connected to exchanges in some way? Is OTC brokering considered 'professional trading' as per the link you shared?

Thanks again Diatessaron!

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 ass). 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.

 

[JohnnyDoe]

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 ass). 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.

That plus all the variations involving derivatives, HFT, prop trading strategies etc.

 

[forbidd3nknowl3dg3]

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.

What does it mean for the OTC desk to distribute the coins in the open market? Does this mean that they sell the crypto through their connections on the exchange?

So OTC broker have pre-existing relationships with larger exchanges. When someone (say a trader) wants to sell a lot of coin without slippage they use an OTC broker who, in turn, sells in batches through their accounts on other exchanges? I like this sort of OTC brokering.

Say A wants to sell at Bitfinex rate right now, price is at ~ 19,194 (because of 3AC dumping everything to save their ass). 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.

Very interesting. I did not know this was a part of OTC trading. Isn't this just a form of arbitrage between two exchanges? Is it safe to assume that one can only engage in this form of OTC brokering when they have built up the necessary funds to purchase a large amount of bitcoin from someone?

The reason I am interested in OTC brokering is because it seems one wouldn't need a lot of start up capital to begin brokering deals. This second example of OTC brokering does not appeal to me like the above example does.

I still very much appreciate your input. Please provide more if you are willing

 

[diatessaron]

What does it mean for the OTC desk to distribute the coins in the open market? Does this mean that they sell the crypto through their connections on the exchange?

So OTC broker have pre-existing relationships with larger exchanges. When someone (say a trader) wants to sell a lot of coin without slippage they use an OTC broker who, in turn, sells in batches through their accounts on other exchanges? I like this sort of OTC brokering.


Very interesting. I did not know this was a part of OTC trading. Isn't this just a form of arbitrage between two exchanges? Is it safe to assume that one can only engage in this form of OTC brokering when they have built up the necessary funds to purchase a large amount of bitcoin from someone?

The reason I am interested in OTC brokering is because it seems one wouldn't need a lot of start up capital to begin brokering deals. This second example of OTC brokering does not appeal to me like the above example does.

I still very much appreciate your input. Please provide more if you are willing

Open market doesn't need the OTC desk to have a special connection with the exchange. Usually TWAP orders are used to accumulate or distribute tokens without too much impact on the price, if at all. That's done in the open market. They basically dump on retail, or buy from retail.

It is arbitrage but like I previously said, an OTC desk in itself isn't worth it as the money you would be making on fees is just ridiculous, that's why you have to get involved with other things like arbitrage etc etc. If you have funds, you buy from someone at market price and hope to sell at a higher price. Money you would be making is on price moves, not fees.

HitBTC has a 0.1% fee on OTC deals, as you can see that's now enough. That's why you have to get involved in other games.

As an OTC broker you're expected to have no limits on exchanges you're working with, currently my fee on Kraken and Bitfinex is 0 for making and very small for taking and there's also no limits. Exchanges will appreciate you a lot when you make (create liquidity). (Search for maker and taker fees)

You can start OTC with 500 USD if you want but it will take a long time to build something. Don't know if it's OTC at that point or just person 2 person trading.

 

[forbidd3nknowl3dg3]

Open market doesn't need the OTC desk to have a special connection with the exchange. Usually TWAP orders are used to accumulate or distribute tokens without too much impact on the price, if at all. That's done in the open market. They basically dump on retail, or buy from retail.

It is arbitrage but like I previously said, an OTC desk in itself isn't worth it as the money you would be making on fees is just ridiculous, that's why you have to get involved with other things like arbitrage etc etc. If you have funds, you buy from someone at market price and hope to sell at a higher price. Money you would be making is on price moves, not fees.

HitBTC has a 0.1% fee on OTC deals, as you can see that's now enough. That's why you have to get involved in other games.

As an OTC broker you're expected to have no limits on exchanges you're working with, currently my fee on Kraken and Bitfinex is 0 for making and very small for taking and there's also no limits. Exchanges will appreciate you a lot when you make (create liquidity). (Search for maker and taker fees)

You can start OTC with 500 USD if you want but it will take a long time to build something. Don't know if it's OTC at that point or just person 2 person trading.

Thanks man

 

[forbidd3nknowl3dg3]

Open market doesn't need the OTC desk to have a special connection with the exchange. Usually TWAP orders are used to accumulate or distribute tokens without too much impact on the price, if at all. That's done in the open market. They basically dump on retail, or buy from retail.

It is arbitrage but like I previously said, an OTC desk in itself isn't worth it as the money you would be making on fees is just ridiculous, that's why you have to get involved with other things like arbitrage etc etc. If you have funds, you buy from someone at market price and hope to sell at a higher price. Money you would be making is on price moves, not fees.

HitBTC has a 0.1% fee on OTC deals, as you can see that's now enough. That's why you have to get involved in other games.

As an OTC broker you're expected to have no limits on exchanges you're working with, currently my fee on Kraken and Bitfinex is 0 for making and very small for taking and there's also no limits. Exchanges will appreciate you a lot when you make (create liquidity). (Search for maker and taker fees)

You can start OTC with 500 USD if you want but it will take a long time to build something. Don't know if it's OTC at that point or just person 2 person trading.

Thanks for providing these insights into the crypto OTC market. Can you recommend any resources that one can look at to learn more?

It sure seems that the world of OTC brokers is much more complicated than meets the eye.

 

[azb1]

Can I Give you suggestion ?
Start low level like, If you want to become OTC on crypto, Start with localbitcoin , start providing service their.
Use white label solution, Just start at small scale , learn how things works ..
You will be achieve what you what to become.

 

[diatessaron]

Thanks for providing these insights into the crypto OTC market. Can you recommend any resources that one can look at to learn more?

It sure seems that the world of OTC brokers is much more complicated than meets the eye.

Bitcoin OTC web of trust should be a good start. Other than that I don't really know of any other source of information on this.

 

[azb1]

Better to find high quality, Buyer and seller, Things will works fine after that