Why traders use OTC desks

OTC trading offers several advantages compared with lit exchange orders. For larger executions it can reduce slippage, hide order flow, and provide bespoke settlement rails — including CAD bank wires, Interac e‑transfer arrangements, stablecoin transfers, or custodial transfers. Retail traders occasionally use OTC services for large buys/sells, to obtain block prices, or to arrange settlement with specific custody and compliance requirements.

Common use cases

• Executing large trades without pushing the market price.
• Arranging delivered settlement with custodians or cold storage partners.
• Accessing negotiated spreads, especially during periods of low lit-book liquidity.
• Facilitating cross-border settlement and FX management when CAD or USD rails are needed.

How OTC pricing works (and how to read a quote)

OTC desks quote prices differently from exchanges. A desk's quote reflects: the mid-market reference, the block size, bilateral credit risk, the speed of settlement, and the desk's inventory and hedging costs. A retail trader receiving an OTC quote should interpret it as a negotiated bilateral price, not a guaranteed public market price.

Key components of a quote

• Notional / Block size: Quotes are size dependent. Larger blocks often command wider spreads or require staged execution.
• Settlement method: CAD wire vs Interac e‑transfer vs stablecoin vs on-chain BTC transfer — each affects price and counterparty risk.
• Time to settle: Faster settlement usually increases the premium; delayed settlement may lower it.
• Counterparty credit terms: OTC counterparties will price in credit risk and KYC/AML constraints.
• Fees and commissions: Some desks embed fees in the spread; others charge an explicit fee.

Practical tip

Always request a firm quote that specifies size, settlement rail, settlement window, and whether fees are included. Ambiguity is a common source of costly settlement disputes.

Settlement rails: pros, cons, and Canadian considerations

Settlement choice affects both operational risk and cost. Canadian traders should be aware of CAD-specific rails (bank wire, Interac e‑transfer) and regulatory friction (identity verification, transaction reporting). International desks may prefer USD wires, stablecoins, or on-chain BTC transfers.

CAD settlement (bank wires and Interac e‑transfer)

• Bank wires: Secure for large amounts but slower and subject to banking counterparty limits. Expect information requirements from banks and possible AML reviews.
• Interac e‑transfer: Fast for smaller amounts but carries elevated counterparty and fraud risk; many OTC desks limit e‑transfer usage and require additional KYC when used for settlement.

Stablecoins and on‑chain settlement

USD stablecoins (USDC, USDT) are commonly used to settle with international desks. On‑chain BTC settlement removes fiat rails but introduces blockchain confirmation risk and fees. For Canadian traders, moving between CAD and stablecoins requires attention to FX, exchange limits, and tax recordkeeping.

Counterparty, custody, and operational risk

OTC is fundamentally a counterparty relationship. The operational and credit risk profile depends on the desk's creditworthiness, custody arrangements, and settlement automation. Retail participants must evaluate who holds custody during and after the trade, and what protections exist if a counterparty fails.

Questions to ask an OTC desk

• Who is the settlement counterparty, and where are their accounts located?
• Does the desk use segregated custody, and is proof-of-reserves available?
• What identity and documentation will be required for settlement and post-trade reconciliation?
• What is the dispute resolution and rollback procedure if settlement fails?

Custody choices

Decide in advance whether the BTC should be delivered to your self-custody address or retained with a custodian. Self-custody eliminates much counterparty custody risk but requires operational readiness (addresses, UTXO hygiene, and confirmation policies). Custodial settlement may simplify tax reporting and custody proofing but reintroduces custodian counterparty risk.

Compliance in Canada: FINTRAC, CRA, and KYC expectations

Canadian OTC activity sits within a regulatory framework. FINTRAC-regulated entities (money services businesses, many exchanges, and dealers) have AML/KYC obligations. The CRA cares about tax classification and accurate recordkeeping for capital gains, business income, or barter rules depending on a trader’s activity.

KYC / AML mechanics

• Expect identity verification, proof of funds, and source-of-wealth questions for larger OTC trades.
• OTC desks have SAR (suspicious activity report) obligations and may freeze or refuse trades that trigger compliance flags.
• Keep clear records of counterparty communications, invoices, and settlement confirmations to simplify any future compliance review.

Tax recordkeeping (CRA)

The CRA expects accurate records of trade dates, amounts, ACB (adjusted cost base) calculations, and receipts for settlement. Trades settled via stablecoins or cross-border fiat require careful documentation to track CAD equivalent values and FX rates. Whether a trader’s activity is treated as capital gains or business income depends on frequency, intent, and other facts — retain professional tax advice and document your rationale.

Operational checklist before using an OTC desk

Use this practical checklist to reduce execution and settlement friction. Customize it to your jurisdiction, counterparty, and trade size.

Pre-trade checklist

• Confirm the exact notional and acceptable slippage or spread.
• Obtain a firm written quote detailing price, fees, settlement rail, and settlement window.
• Verify counterparty identity, regulatory status in their jurisdiction, and KYC requirements.
• Decide and test the delivery address (self-custody or custodian). If self-custody, send a small test transfer first.
• Confirm bank/custodial limits, cut-off times, and time zones for cross-border rails.

Settlement checklist

• Record timestamps and transaction IDs for both fiat and crypto legs.
• Confirm blockchain confirmations required before trade is marked complete.
• Keep counterparty contact details and compliance officer contact for urgent resolution.
• Reconcile received amounts with expected ACB and record FX conversion rates if needed.

Post-trade checklist

• Store receipts, communications, and wallet proofs securely for CRA recordkeeping (minimum six years recommended).
• Update your trading ledger or journal with execution quality metrics: spread, slippage, fees, and settlement time.
• Review counterparty performance and flag any deviations for future counterparty selection.

Red flags and negotiation tips

Watch for rushed asks to avoid proper KYC, unclear settlement terms, or pressure to settle on risky rails such as e‑transfers for large amounts. Reasonable desks will provide clear documentation and a standardized settlement playbook.

Negotiation tips

• Leverage multiple quotes to benchmark spreads and settlement times.
• Negotiate staged delivery for very large blocks to reduce inventory risk for both parties.
• Ask about the desk’s hedging approach — a desk that transparently hedges on exchanges or via futures tends to manage inventory risk better.

Real-world examples and use cases

A Canadian retail trader moving a large Bitcoin buy might compare an exchange limit order (risking slippage), an OTC desk with CAD bank wire settlement to a custodian, and a hybrid approach where they buy on an exchange in tranches while negotiating an OTC top-up. Each option has tradeoffs in cost, settlement speed, and counterparty exposure.

Conclusion: A pragmatic, compliance‑first approach

OTC desks are a valuable tool for traders who need bespoke execution, reduced market impact, or specialised settlement rails. For Canadian traders the key is marrying operational readiness with a compliance‑first mindset: document everything, verify counterparties, choose settlement rails thoughtfully, and maintain robust records for CRA and FINTRAC expectations. With clear processes, a disciplined checklist, and prudent custody decisions, OTC execution can be integrated safely into a broader Bitcoin trading playbook.