How B2B OTC Transactions Are Structured

What OTC means

An over-the-counter transaction is agreed directly between two parties rather than matched on a public exchange order book. The price, size and settlement terms are negotiated bilaterally and apply to that trade alone.

An OTC counterparty can act in one of two capacities. Acting as principal, it trades on its own account and is the other side of the transaction. Acting as agent, it arranges the trade between its client and a third party. The capacity matters because it determines who the business is contracting with and where its counterparty risk sits.

Why businesses trade OTC

The main reason is size. A large order placed on an exchange order book can move the price against itself as it executes. An OTC trade is quoted as a single price for the full amount, so the business knows the outcome before it commits.

OTC arrangements also allow settlement terms to be tailored: which currency and which network are used, when each leg moves, and which accounts and wallets are involved. And because the relationship is bilateral, due diligence is carried out once on a known counterparty rather than assumed of an anonymous market.

The lifecycle of an OTC trade

Although terms vary between counterparties, most B2B OTC transactions follow the same sequence.

Onboarding

Before any trade, each side carries out due diligence on the other: corporate documents, beneficial ownership, the nature of the business and the expected source of funds.

Request for quote

The client specifies the asset pair, the direction and the amount it wishes to trade.

Quote and acceptance

The counterparty returns a price, usually valid for a short period. The trade is agreed when the client accepts within that window.

Confirmation

Both sides receive a written record of the trade: asset, amount, price, settlement instructions and settlement time.

Settlement

Each party delivers its leg to the agreed bank account or wallet address, in the agreed order.

Post-trade

Both sides reconcile the trade against bank and on-chain records and retain the documentation.

The terms that define a trade

A handful of terms do most of the work in an OTC arrangement, and they are worth agreeing explicitly rather than leaving to convention.

Pricing basis

Whether the counterparty is paid through a spread included in the quoted price or through a separately stated fee.

Settlement window

How soon after the trade each leg must be delivered — the same day or a later agreed date.

Settlement order

Which party delivers first, and what evidence releases the second leg.

Settlement instructions

The bank accounts and wallet addresses to be used, verified in advance and changed only through an agreed procedure.

Risks and controls

Because an OTC trade is bilateral, the principal risks sit with the counterparties themselves. Counterparty risk is the possibility that the other side fails to perform. Settlement risk is the narrower possibility that one leg is delivered and the other is not; it is managed through the settlement order, pre-funding or delivery-versus-payment arrangements.

Operational risk is often the most practical concern. Digital asset transfers are generally irreversible, so an incorrect wallet address is a costly mistake. Verified, pre-agreed addresses and test transfers are standard safeguards.

Compliance controls run through the whole lifecycle rather than sitting at the start. Counterparties typically screen each other against sanctions lists, monitor transactions for unusual patterns, and keep records of who traded what, when and on what terms. For a business, a counterparty's willingness to ask detailed questions is usually a sign of a well-run desk rather than an obstacle.