How Over the Counter Trading Is Structured

A growing share of volume trades bilaterally rather than on public books. The structure explains the pricing.

The participants

Principal desks quote from their own book and carry the position until they unwind it. Your counterparty is the desk.

Agency desks find a counterparty and charge a commission. Your counterparty is whoever they found.

Liquidity providers supply pricing to desks and to venues rather than serving end clients directly.

Settlement providers hold both legs and release simultaneously, removing the question of who sends first.

Which you are dealing with changes what you are paying for, and it is a reasonable question to ask.

Where the margin sits

For a principal desk: the spread between what they quote and what they can unwind at, plus compensation for the risk of the price moving while they do.

That is why quotes widen with volatility and with size relative to normal market depth, and why a desk already holding what you want to sell quotes differently from one that must source it. If you want to see what these terms look like in an actual product, a regulated European crypto platform states them openly.

What the client is buying

Certainty: one firm price for the whole amount rather than an unknown average.

Discretion: nothing appears on a public book, so the market does not react while the trade executes.

Access: the desk can source from venues and counterparties the client would have to reach individually.

Why flow moved off books

Because for size, a book works against you. The order consumes levels, other participants see it, and replacement liquidity arrives at the worse level.

The threshold is lower than most assume, because displayed depth systematically overstates what actually fills.

The settlement layer

The structural weakness of bilateral trading was that one side moves first.

Regulated entities now offer settlement holding both legs, which converts counterparty risk into risk on a supervised entity with segregated client assets.

That is the most significant structural improvement in this part of the market and it is now standard among serious desks.

What it means for visible data

Exchange volume no longer represents total activity, and it understates most in exactly the assets where institutional flow concentrates.

Inferring liquidity from displayed volume overstates what can actually be transacted, which is a systematic error worth correcting for. When something stalls, the difference is whether there is a support channel with a named contact or only a ticket queue.