3 Reasons Why You Shouldn’t Exchange Huge Amounts via OTC

Big transactions happen on a constant basis through BestRate. Here is another live example:

Someone has exchanged 5,000,000 BCN (Bytecoin) to almost 11,000 USDT (a stable coin) through an OTC platform. We could save $500-600 for this amount if the person reached us to use our new algorithm.

OTC (over-the-counter or off-exchange) platforms allow you to switch currencies directly between your own wallets without the necessity to sign up and verify. Simply select the coins to exchange, put in your wallets and wait till the transaction is confirmed on the blockchain.

This may be very convenient when you exchange a small amount and you want to do it fast. However, If you exchange a huge amount of cryptos via such a tool you may simply lose money.

How can it be possible, you may ask.

How OTC’s deceive their users

There are 3 reasons why you will surely lose money when transferring money through OTC.

  1. It’s hard to check the rate. For huge amounts, it’s hard to track the final sum that you receive. It will take some time for the money to be converted and if you don’t write down the sum you may not even notice this deception.
  2. OTC’s make transactions through exchange platforms anyway. First, they add their own fees. Second, they drop the rate placing such a huge order.
  3. OTCs don’t have any special tools to exchange huge sums at the best rate. These are not typical transactions that they work with on a daily basis.

So unless you are ready to give away a huge portion of your money to some third-party exchange platforms, you’d better not transfer such huge funds through OTCs.

How can you complete this task and exchange currencies with the minimum losses? BestRate offers a solution.

BestRate trading bots for exchanging your crypto reserves

We’ve already reviewed 3 tiresome ways to manually exchange huge sums and one more that is fast and convenient with the help of our trading bot in the recent article. This time we’d like to share some more features and techniques that our bot utilizes to make an exchange at the best rate.

A live example for a crypto coin X

Let’s assume that we want to liquidate the coin X, with the total volume more than $1 mln, given that the price of the coin is around 4$, it gives us 250 000 coins to liquidate.

First of all, we would need to aggregate the daily trades on the exchanges to find out min and max of daily trades and understand where most of the X/BTC trades happen.

Let’s assume that based on the information from the exchanges, the minimum and the maximum daily trades are as follows:

  • Min daily trade = 20 775 coins
  • Max daily trade = 182 642 coins

We can exchange 15% of the daily trade so as not to drop the coin’s price. Thus, we can exchange:

  • Min X coins = 20 775 * 15% ~ 3 000 coins
  • Max X coins = 182 642 * 15% ~ 30 000 coins

Thus, we can exchange the whole sum in the following rage:

  • Min time = 250 000 / 30 000 ~9 days
  • Max time = 250 000 / 3 000 ~ 83 days

Now we need to take into consideration the losses that we may bear due to the X coin’s price decreasing over the selected period of time. This index is called the Value at Risk (VaR).

We are going to use the value for this index from the study “On time-scaling of risk and the square-root-of-time rule” made by the London School of Economics. According to the table from this study, the VaR for 8 days of coin X would be -0.1381.

Downside risk table

When calculated for 9 and 83 days, it will be -0.2565% and -0.778942071016838% accordingly.

Now let’s calculate the Expected Shortfall (ES). This index is defined as the average of all losses which are greater or equal to VaR. E.g. ES for a coin equals to -0.2. It means that if today is an unlucky day and the daily return exceeds the VAR estimate, the most likely outcome is a -20% loss.

This position implies value at risk for 9 days on exchanges to be around -0.2565%. But if the current investment environment stays in the bad condition as it was in September 2018 and the trading volumes remain low, we expect the time for exchange to grow up to 83 days with the corresponding increase of valued risk up to -0.778942071016838% loss.

We can say this with 95% statistical certainty.

We can justify the risk via the density plot and ES chart below.

ES chart

Density Plot

Send us a request to exchange a huge amount of cryptos

With our trading bots, you can exchange huge amounts of cryptos at the best rate and without tons of manual work. Send us a request on the page below and we will help you with the solution!