# How does a crypto OTC desk work? A crypto OTC desk onboards the client, quotes a price, takes or arranges the other side, hedges, then confirms, settles and books the trade under set limits. --- A crypto OTC desk works as a small trading firm with four functions around one client: sales takes the request, trading prices it and takes or finds the other side, operations confirms and settles it, and compliance decides beforehand whether the desk may deal with that client at all. The client sees one price and one confirmation; inside the desk, the same trade is a credit check, a quote, a position to hedge, two movements to settle and a set of records to close. This article follows the inside of the desk, for a fund, a treasury, a family office or a large private holder who is about to trade in size and wants to know what happens on the other end of the chat. An over-the-counter (OTC) trade is one agreed directly with a counterparty at a negotiated price, away from an exchange order book. It is general information, not legal or investment advice, and the rules a desk works under differ from one country to the next. One trade runs through the whole article as a worked example: a client sells 2,500 ether (ETH) to a desk when the reference mid price is $3,200. Every figure in it is illustrative and chosen for readable arithmetic.
$7,980,000paid to the client on a firm bid of $3,192 for 2,500 ETH
28 minutesduring which the desk carries the position before it is fully hedged
$17,641.08the desk's result on the trade, against $20,000 of quoted spread

Illustrative worked example detailed in the sections below: one principal trade, hedged partly against another client and partly on external venues.

## Which functions make up a crypto OTC desk? A crypto OTC desk is made up of four core functions, sales, trading, operations and compliance, with risk and treasury either as separate seats or folded into them at a small firm. Each function owns one part of the trade and one set of records, and the separation between them is itself a control. In a large desk these are different teams on different reporting lines. In a firm of five people, one person may hold two of the roles, but the duties stay distinct: the person who agrees the price should not be the only person who releases the payment, and the person who brings in the client should not be the one who approves the client. | Function | What it does on a trade | What it owns | | --- | --- | --- | | Sales, or coverage | Takes the client's request, passes it to trading, relays the quote, confirms the acceptance | The client relationship and the chat or call record | | Trading | Prices the request, decides how the desk takes or finds the other side, hedges the position | The price, the position and the hedge | | Operations | Issues the confirmation, verifies settlement instructions, sends and receives both legs, reconciles | The confirmation and the movements | | Compliance | Approves the client at onboarding, screens wallets and payments, monitors trading | The client file and the right to say no | | Risk and treasury | Sets position and credit limits, funds the accounts and wallets the desk settles from | The limits and the liquidity | The words "front office", "middle office" and "back office" map onto the same split. Sales and trading are the front office. Risk and compliance sit in the middle. Operations, with finance, is the back office. A client talks almost only to sales, which is why the other functions are easy to overlook, and why a delay that sales cannot explain usually has its cause in one of them. ## What happens at onboarding, before the desk will quote? Before a crypto OTC desk gives a client a tradable price, it opens a client file: it identifies the legal entity and the people behind it, checks where the funds and the assets come from, signs a trading agreement and registers the bank accounts and wallet addresses the client will settle from. No firm quote is given before that file is approved, because a firm quote is an offer to become the client's counterparty. The reason is regulatory as much as commercial. The Financial Action Task Force (FATF), the standard-setter for anti-money laundering rules, states that virtual asset service providers are subject to the same relevant measures that apply to financial institutions, and that countries should license or register them and supervise them. A desk that exchanges digital assets for money as a business falls in that category in most places, so it carries customer due diligence, record-keeping and reporting duties of its own. How those duties are written varies by country. Onboarding normally produces four things inside the desk: - **An approved client file.** Corporate documents, beneficial owners, authorised traders, source of funds and source of the assets, sanctions screening. Compliance signs it off, not sales. - **A signed trading agreement.** It states the capacity in which the desk acts, when a trade becomes binding, how it is confirmed, the settlement cycle and what happens if a side fails to deliver. - **Registered settlement instructions.** The bank accounts and wallet addresses the client will pay from and receive to, verified through a second channel. Later changes go through the same verification, never through a chat message alone. - **Limits.** Risk sets how much the desk will trade with this client in a day and how much it will have outstanding with the client at settlement. The last item is the one clients see least and feel most. A new client with no track record typically gets a small settlement limit or none, which in practice means the desk asks to receive the client's leg before it sends its own. That is a credit decision, not a judgement on the client, and it is revisited as the relationship builds. Onboarding takes from a few days to several weeks depending on the structure of the client. The practical point is to onboard before a trade is urgent. ## Does the desk trade as principal or as agent, and what changes inside? A crypto OTC desk acting as principal buys from the client or sells to the client for its own account, so the position and its price risk sit on the desk's book; a desk acting as agent arranges or executes the trade for the client, so the price risk stays with the client and the desk carries no position. Inside the desk, that single distinction decides whether trading has something to hedge, whether risk has a limit to watch and what finance books. In a principal trade, the moment the client accepts the quote, the desk owns a position it did not have a second earlier. Trading must decide what to do with it, risk counts it against a limit, and treasury must have the cash or the asset ready to settle. In an agency trade, the desk's work is to find the best available price for the client's order, across its counterparties and venues, and to report each fill. There is nothing to hedge. The Global Foreign Exchange Committee's commentary on pre-hedging makes the same point for currency markets: an agent has no need to pre-hedge, because the party it acts for is carrying the market risk. Regulation draws the line in similar terms. In the European Union, the Markets in Crypto-Assets Regulation (MiCA) treats the two as different services. Exchanging crypto-assets for funds means concluding purchase or sale contracts with clients using the provider's own capital; executing orders means concluding agreements to buy or sell on behalf of clients. A provider that exchanges against its own capital must publish a firm price or a method for determining the price, and must execute at the price displayed when the order becomes final. Other jurisdictions use other words, and some have no specific regime yet. ## Where does the desk find the other side of a client's trade? A crypto OTC desk finds the other side of a client's trade in four places: an opposite interest from another of its clients, its own inventory, other liquidity providers it trades with bilaterally, and exchange order books, sometimes with a derivative used as a temporary hedge. The order in which it uses them depends on the size of the trade, the asset and how fast the desk wants the position gone. Matching one client's sale with another client's purchase is called internalisation. It is the cheapest source, because no venue fee is paid and no order is shown to the market, and it is the reason desks ask clients about their standing interests, often called axes. Inventory is the next source: a desk that holds the asset can sell from stock and rebuild later, and a desk that holds cash can buy and carry the asset for a while. When neither covers the size, the desk goes outside. It asks other dealers and market makers for prices on bilateral lines, and it works orders on exchanges, usually sliced by an execution algorithm so that no single order moves the price. For liquid assets it may sell a futures or perpetual contract first, which neutralises the price exposure in one trade, and then unwind that contract as it sells the asset itself in smaller pieces. All of this requires money and assets to be in the right place before the trade. A desk keeps balances prefunded at venues or holds credit lines with its liquidity providers, and treasury moves them as they are used. The depth of those arrangements, more than the number of people on the desk, sets the size it can quote firmly. ## How does the desk hedge the position it has just taken on? A principal desk hedges a new position by passing it on in pieces, first to any matching client interest, then to external liquidity, until its net exposure is back inside its limit; between the client's acceptance and the last hedge, any move in the market is the desk's gain or loss. The hedge is a schedule, a trade-off between selling fast and moving the price, and selling slowly and carrying the risk for longer. In the worked example, the client sells 2,500 ETH to the desk at 10:03. The desk has a standing buy interest from another client for 1,000 ETH and fills it at 10:04. The remaining 1,500 ETH goes to external venues in three pieces over the next 27 minutes. The chart shows what the risk function sees: the open position at each step.
The desk's open position after a 2,500 ETH client saleETH held and not yet hedged, at each step of the worked example
10:03 client trade done 2,500 ETH 10:04 internal cross, 1,000 1,500 ETH 10:10 external sale, 600 900 ETH 10:20 external sale, 600 300 ETH 10:31 external sale, 300 0 ETH

Illustrative. Times and sizes are assumptions of the worked example, not a description of how long any real desk takes.

The size of what is at stake explains why the desk does not simply wait for a better price. With the mid at $3,200, a 1% move is $32 per ETH. On the full 2,500 ETH, unhedged, that is $80,000, four times the $20,000 the desk quoted as its spread on the trade. A desk that carried every position for an hour would be in a different business, one of directional trading with client flow as its entry point. Hedging can also begin before the trade is done, which is called pre-hedging. When a desk expects an order, for instance because a client has asked several times about a large size, it may start to adjust its position in anticipation. The Global Foreign Exchange Committee, whose code governs wholesale currency markets and is often taken as the reference for OTC conduct, describes pre-hedging as the management of the risk associated with one or more anticipated client orders. Its commentary says it is acceptable only for a firm acting as principal, done fairly and transparently with the intent to benefit the client, and that a provider should not pre-hedge a request when the client has specifically asked it not to. That code does not bind crypto desks by itself, but a client can ask for the same terms, and many trading agreements address the point. ## How does one trade move through the desk from request to booking? One trade moves through a crypto OTC desk in seven stages: request, pre-trade checks, quote, acceptance, hedge, confirmation and settlement, then booking and reconciliation. Only the third and fourth are visible to the client in real time; the others take place before or after the price appears in the chat.
One principal trade through the deskWorked example: a client sells 2,500 ETH, reference mid $3,200, firm bid $3,192
  1. Request, 10:02The client's authorised trader asks sales for a price in 2,500 ETH against US dollars. Sales checks that the person is on the client's list of authorised traders and passes the request to trading.
  2. Pre-trade checksThe system, or the trader, checks three things: the client file is approved, the trade fits the client's daily limit, and the desk's own position limit can absorb it. At the mid, the trade is worth $8,000,000 against an intraday limit of $10,000,000 for the asset, so it uses 80% of that limit.
  3. QuoteTrading looks at external depth, at the 1,000 ETH buy interest it holds from another client and at its expected hedge cost, and gives a firm bid of $3,192, which is $8 or 25 basis points below the mid, valid for a few seconds.
  4. Acceptance, 10:03The client replies "done" inside the validity window. The trade is binding at that moment: the desk has bought 2,500 ETH for $7,980,000 and the trade is entered in the blotter with its time, price, size and capacity.
  5. Hedge, 10:04 to 10:31The desk sells 1,000 ETH to its other client at $3,204 and 1,500 ETH on external venues at an average of $3,196.40, as the market drifts lower.
  6. Confirmation and settlementOperations sends a written confirmation the same day and the client checks it against its own record. The client's settlement limit is $5,000,000, less than the trade, so the agreed sequence is delivery first: the client sends the ETH to the desk's registered address, operations verifies receipt, and the desk wires $7,980,000 to the client's registered bank account.
  7. Booking and reconciliationFinance books the purchase, the two sales and the venue fees. Operations reconciles the wallet, the venue balances and the bank account to the blotter before the day is closed.
Two details of this sequence matter to a client. First, the pre-trade checks are the reason a desk sometimes answers a request with a smaller size than asked, or with a short delay: a limit is close, and trading needs approval from risk to go beyond it. Second, the acceptance is the commitment. What follows is the performance of a trade that already exists, which is why the validity of the quote and the exact words that close it deserve attention before the first trade. Settlement itself is the subject of other articles. Here it is enough to say that the order of delivery follows the credit decision made at onboarding, that both legs go only to instructions verified in advance, and that a desk's operations team treats an unreconciled movement as an open item until it is explained. ## What would the same order look like if the desk acted as agent? If the desk acted as agent on the same 2,500 ETH, the client would receive the average price the desk actually obtained in the market, less a stated commission, and the result would depend on what the market did while the order was worked. The firm bid moves that uncertainty onto the desk in exchange for the spread; the agency route leaves the uncertainty with the client and makes the fee visible. The table sets the principal trade of the worked example against two agency outcomes at a commission of 0.10% of the amount executed. In the first, the market holds and the order averages $3,197. In the second, the market slips while the order is worked and it averages $3,188. | Line | Principal, firm bid $3,192 | Agent, average $3,197 | Agent, average $3,188 | | --- | --- | --- | --- | | Gross amount for 2,500 ETH | $7,980,000.00 | $7,992,500.00 | $7,970,000.00 | | Commission at 0.10% | None, cost is in the price | $7,992.50 | $7,970.00 | | **Client receives** | **$7,980,000.00** | **$7,984,507.50** | **$7,962,030.00** | | Difference to the firm bid | — | +$4,507.50 | −$17,970.00 | Neither column is the better deal in advance. The agency route came out $4,507.50 ahead in one case and $17,970.00 behind in the other, and the client could not know which when it chose. What a client can decide is whether it wants certainty of proceeds at the moment of the trade, which a treasury with a payment to make usually does, or whether it is content to carry the market for the time the order takes in exchange for seeing exactly what it paid. Inside the desk, the agency order changes the workload. Trading executes instead of pricing, and its duty is to the quality of the execution. Operations confirms each fill or an average price with the breakdown available on request. Finance books a commission and no position. ## How does the desk earn on a trade like this one? On a principal trade, a crypto OTC desk earns the difference between the price it gives the client and the price at which it exits the position, less its execution costs; on an agency trade it earns the commission. The spread quoted to the client is therefore the desk's revenue only if the hedge is done exactly at the mid, which it rarely is. In the worked example, the quoted spread was $20,000: $8 on each of 2,500 ETH. The sale to the other client at $3,204 added $4,000 above the mid. The 1,500 ETH sold externally at an average of $3,196.40 came in $5,400 below the mid, because the market drifted down during the hedge. Venue fees of 0.02% on the $4,794,600 sold externally cost $958.92. The desk's result is $17,641.08, about 22 basis points of the $8,000,000 notional instead of the 25 quoted. Had the market fallen 1% before the first hedge, the same trade would have lost money. ## Which risks does the desk carry, and how does it control them? A crypto OTC desk carries five kinds of risk on every trade: market risk on the position, credit and settlement risk on the counterparty, liquidity risk on its own funding, operational risk on the movements, and compliance and conduct risk on the client and on its own behaviour. Each has an owner inside the desk and a limit or a procedure attached to it. | Risk | Where it arises | Typical control | | --- | --- | --- | | Market | Between the client's acceptance and the last hedge | Position limits per asset, loss limits per day, hedging rules by size | | Credit and settlement | When the desk sends its leg before it has received the client's | Settlement limits per client, delivery-first sequencing, collateral for larger lines | | Liquidity and funding | When cash or assets are at the wrong venue, bank or wallet at settlement time | Prefunding plans, credit lines, cut-off times for same-day settlement | | Operational | A wrong address, a wrong amount, a changed instruction, a key or approval failure | Verified instructions, two-person release, test transfers, daily reconciliation | | Compliance and conduct | A client or wallet that should not have been accepted; misuse of client information | Onboarding approval, wallet and payment screening, information barriers, trade surveillance | Two of these deserve a word more, because they shape what the client experiences. Credit and settlement risk is the largest single exposure on any one trade: if the desk in the example had wired first, its exposure to the client would have been the full $7,980,000 until the ETH arrived, an amount hundreds of times larger than its result on the trade. That asymmetry, and not distrust, is why desks hold firmly to the settlement sequence. Conduct risk is the one regulators stress for firms that combine several roles. The International Organization of Securities Commissions (IOSCO), in its 2023 policy recommendations for crypto and digital asset markets, lists conflicts of interest arising from the vertical integration of activities and functions among the areas its 18 recommendations cover, next to custody and client asset protection and operational and technological risk. For a desk, the everyday form of that conflict is information: sales knows what a client intends to do before the market does. Information barriers, recorded communication channels and rules on pre-hedging exist to keep that knowledge from being used against the client it came from. ## What does the desk's internal process mean for the client? For the client, the way a crypto OTC desk is organised means that the speed and the price of a trade are decided largely before the request is sent: by a completed client file, by limits that fit the intended size, and by settlement instructions already verified. A client who knows which function owns each step can prepare for it and can ask precise questions. A few practices follow directly from the mechanics described above: - **Onboard with more than one desk before a trade is needed.** Approval is the slowest step and cannot be compressed on the day. - **Ask about limits in advance.** If the intended trade exceeds the daily or settlement limit the desk has set, say so early: risk can review a limit in days, not in the seconds a quote is valid. - **Read the capacity and the pre-hedging clause.** Know whether the desk is principal or agent on the asset in question, and state it in writing if a request should not be pre-hedged. - **Give the desk the facts trading needs.** Asset, size, the currency of the other leg and the settlement date wanted. An incomplete request gets an indicative answer. - **Know the cut-off times.** Bank wires have daily cut-offs, and a trade agreed late in the banking day often settles the next business day. - **Check the confirmation the same day.** The confirmation, not the chat, is the record operations and finance work from, and an error is easiest to correct before either leg moves.