Cryptocurrency exchanges are exciting places, home to Bitcoin and altcoin trades that you never thought possible. However, the experience isn’t quite as smooth as it could be. There’s a lot of jargon on cryptocurrency trading pairs that can seem complex and confusing at times. If a patch is going to smoothen things over, the least we can do is understand why we’re putting it there in the first place!
Crypto trading pairs are a combination of two cryptocurrencies that are traded against each other. Each crypto trading pair has its own name and it consists of a specific base currency and the other quote currency. It just so happens that those two currencies can be traded for each other on an exchange, hence their name as trading crypto pairs.
Fiat currency vs. Cryptocurrency
Although various options are now emerging, cryptocurrencies typically do not trade against fiat currencies. Instead, you will trade against the value of another cryptocurrency. These combinations help you figure out how much your coins are worth. A typical exchange will provide a variety of pairings, and depending on the currencies you now own, you can choose which ones to utilize.
Dogecoin even serves as a popular trading pair and is usually utilized for low market capitalization coins that are challenging to trade with a cryptocurrency like Bitcoin. Some investors also favor doge because it is an excellent place to store bargains since its value is often stable.
In essence, a pairing serves as a base from which to trade other currency or tokens. You must possess the base currency in one of these marketplaces in order to purchase new currencies. When you notice a nice little green blip on the chart for a Bitcoin pairing, that represents the increase in value of your bought asset relative to Bitcoin’s price.
What are Crypto Trading Pairs?
A part of a cryptocurrency transaction in which cryptos are bought or sold is crypto trading pairs. In order to buy and convert currencies after selling a cryptocurrency, you will need to do so. The act of selecting a currency to trade is referred to as crypto trading pairs.
A crypto trading pair consists of two parts: the first part is the base currency and the second part is the quote currency. The base currency is always on the left side, while quote currency is on the right side. For example, if you want to invest in Bitcoin (BTC), you need to first convert your fiat money into BTC using a crypto exchange like Coinbase or Binance. In this case, BTC is the base currency and US Dollar is the quote currency.
The most common crypto trading pairs include BTC/USD, ETH/USD, XRP/USD and LTC/USD. These pairs are used by investors who want to trade with USD as their base currency since it is more stable than other quote currencies like EURO, JPY and GBP.
How Do Crypto Trading Pairs Work?
Pair trading isn’t actually limited to the bitcoin market. It’s a crypto trading strategy that has been adapted from the stock market, where investors choose two highly linked stocks and buy one while selling the other when their prices diverge.
Pair trading is easier to understand in the cryptocurrency market. All you need to do is purchase cryptocurrency using fiat currency.
Cryptocurrency pairs are a way to compare the costs of several different cryptocurrencies. When you look at a cryptocurrency pair, you can see how much Bitcoin (BTC) is worth in Ethereum (ETH) and how much ETH is worth in Bitcoin Cash (BCH). Exchanges typically provide many pairing options, allowing you to select a pairing depending on which currencies you already own.
If you want to trade one cryptocurrency for another, you can pair them up via the exchange. So if you have Ethereum and want to trade it for Bitcoin Cash, you can do so by using an exchange’s pairing option.
The process of pairing up cryptocurrencies is simple: You choose which coins you want to pair together, place a buy order, and wait for it to be filled by another trader. If a trader wants to sell their coin(s) at a higher price than what they paid for it originally, they will accept your bid and complete the transaction with their coins being sold at an agreed-upon price point (called “market price”).
For example, if you want to know how much Bitcoin (BTC) is worth in Ethereum (ETH), you could calculate it like this:
BTC/ETH = BTC price / ETH price
So, if 1 BTC costs $5,000 and 1 ETH costs $100, then BTC/ETH = 5,000/100 = 50. This means that one Bitcoin would be worth fifty Ethereum.
Cryptocurrency pairs also work the other way round: if you know how much Bitcoin Cash (BCH) is worth in Ethereum (ETH), then you can calculate it like this:
BCH/ETH = BCH price / ETH price
If 1 BCH costs $1,000 and 1 ETH costs $100, then BCH/ETH = 1,000/100 = 10. So one Bitcoin Cash would be worth ten Ethers.
How to Select a Base currency
When selecting a base currency for your exchange, it’s critical to consider the market’s available liquidity. Liquidity refers to the market’s ability to absorb new purchases with minimal impact on the price of that item.
For example, if you were trying to purchase Litecoin in order to spend them on something else, you would want to make sure that there were enough sellers in the market who could absorb your purchase without making the price go up significantly. Due to lower transaction costs and quicker returns, trading Litecoin rather than Bitcoin may seem like a great idea. However, keep in mind that you could end up paying more than you intended to.
This is because the amount of liquidity in any given market can affect how much money you spend on transactions. For example, if you have $5 worth of Litecoin but are looking to invest in an item that costs $100, you’ll need to buy 10 LTC at once—and that might not be possible depending on how much other people want to sell their LTC at what price.
Be sure to check out other crypto exchanges before giving up on trading with your favourite pairing. One company’s light order book does not necessarily mean the others will follow the lead. Typically, a cryptocurrency market aggregator tool can help you quickly find out which coin or token pairings are offered for the coin or token you wish to buy, as well as which exchanges provide them and how much they trade.
Market conditions to consider when choosing the best cryptocurrency pairs
You will be trading to make a sizable profit because you are a rational trader. However, there are a few things you need to consider before you can select “the ideal trading pair.”
- Expected performance: How do you anticipate the two currencies being swapped performing throughout your targeted time horizon? What is the best time to do it? Most crucially, you will decide to purchase a currency whose value you anticipate rising significantly.
- Horizon: Do you wish to hold the asset you purchased for a longer period of time, such as weeks, months, or even longer, or are you trading for the immediate term, such as a few hours or days?
- Volatility: Cryptocurrencies typically have far higher volatility than fiat money. This implies that unlike crypto-fiat pairs, crypto-pairs might experience more pronounced swings and are more difficult to monitor. One of the reasons why cryptocurrency prices are most frequently quoted in USD is due to this.
- Deposit currency: It goes without saying that in order to swap the base currency for the quote currency, you must already have the base currency in your exchange wallet. You need to possess BTC in order to exchange it for ETH before trading BTC/ETH.
Typically, if you anticipate the quote currency to appreciate in value, particularly in comparison to the base currency you currently possess, you will select a trading pair.
Benefits of Crypto Trading Pairs
There are many advantages to crypto trading pairs, but they all boil down to one thing: convenience. Crypto trading pairs allow you to trade cryptocurrencies without having to go through fiat currencies or other types of assets. This means that you don’t have to worry about going through banks or other financial institutions when you want to make a trade—just open up your crypto exchange and start buying!
Another advantage is that trading takes place on an open exchange platform where anyone can participate in buying and selling coins at any time. This means that there are price changes or fluctuations, which makes it more likely that you’ll find a good deal when you’re buying or selling coins on any given day.
Crypto trading pairs also allow for instant transfers between different accounts within the same company or even between different companies altogether without having to go through any kind of bank account or wire transfer process first—you just send money from one account directly into another without any delay whatsoever!
Is there a basis for picking one pair over the other?
A trader’s personal preferences play a role in which currency they choose to trade against. However, you might also get a few more advantages. Pricing in one market may differ greatly from that in other crypto markets, as we observed in the previous section.
If you were ready to wait for a transaction, you might be able to receive better and different prices if you wished to exchange a specific asset for an altcoin. Others could merely want to attempt to earn money in a market in a less competitive environment.
However, because they offer cheaper fees and quicker transfers, many users choose that other crypto as a pair. You decide whether or not to use different base currencies, and you have to weigh the advantages to determine whether they are appropriate for your situation.
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