While investing in crypto has become increasingly accessible and common in recent years, understanding the inner workings of the market and learning how to navigate it safely and effectively still poses many challenges, especially for newcomers.
If you’re planning to get started with crypto investing, one of the main aspects you have to focus on is crypto pairs since these represent the core components of selling and buying cryptocurrency. You’ve probably already seen pairings such as ETH/BTC, BTC/ETH, or BTC/DOGE appearing on exchange platforms, but do you know what they represent and how to interpret them?
Deciphering how crypto pairs work is the first step toward successful crypto trades, so let’s see what they’re all about.
Crypto Trading Pairs Explained
In the early days of crypto exchange platforms, trading digital currencies for fiat money wasn’t possible. One could only trade crypto for crypto, so traders would resort to pairs like BTC/ETH to swap one coin for another. Nowadays, trading crypto for fiat is a service that almost all exchanges support. However, crypto-to-crypto trades remain a popular option that many individuals use to manage their investments. Besides, certain cryptocurrencies can only be bought or sold using other assets in this class.
Basically, a crypto pair represents a combination of two distinct digital assets that can be transacted for one another on a trading platform and denotes the exchange rate for that specific pair. For example, when you see the ETH/BTC pair, it means you can swap ETH for BTC or vice versa.
Trading platforms offer different pairing options, so users can trade the coins they’re interested in with ease. This gives them the opportunity to diversify their portfolios by exchanging some of the cryptos they own for others they lack and could make a good addition to their crypto holdings.
The exchange rates of crypto trading pairs reflect the value relationships between two cryptocurrencies. Traders use this indicator to compare and analyze the relative worth of different digital assets so they can speculate on the price differences between them and take advantage of market movements to earn a profit.
Crypto pairs also allow traders to engage in arbitrage. This is an investment strategy in which a trader buys or sells the same assets in two or more markets to capitalize on the price variances.
Structure-wise, all trading pairs, be it crypto-to-crypto or crypto-to-fiat, consist of a base currency and a quote currency. The base currency is the first one listed in the pair and represents the coin that is being bought or sold, while the quote currency is the second listed component and represents the currency used to conduct the transaction.
For example, in the ETH/BTC pair, ETH is the base currency, and BTC is the quoted currency. In this instance, the exchange rate between the two shows how much BTC you would need to purchase one ETH or how much BTC you can get by selling one ETH. If the figure is 0.02638, that’s Ethereum’s value expressed in Bitcoin.
Choosing The Right Crypto Trading Pairs
With so many crypto pairs available on exchange platforms nowadays, beginner traders often have difficulties deciding which one to choose and don’t even know where to start their search. There are several aspects you need to focus on when assessing different trading pairs.
Trading Volume
A pair’s trading volume can have a significant impact on your trading experience. When a currency pair has a low trading volume, it has less liquidity, which means there are fewer buyers and sellers trading these assets in the market. Therefore, it can take longer for your order to execute, and prices can change considerably in the meantime. This can make it more difficult to complete your order at the desired price, particularly in the case of larger transactions.
A crypto pair might have an attractive profit potential, but a low trading volume might cancel this potential advantage. That’s why it’s best to look for pairs with a reasonable trading volume and not focus solely on their return potential.
Volatility
Volatility in trading can be both a challenge and an opportunity. On the one hand, opting for a crypto pair that is highly volatile might expose you to a greater risk of losses. On the other hand, the same volatility can provide you with better opportunities for profit if handled properly. Your choice depends on how adept you are at managing risks and using price swings to your advantage. If you’re not yet confident in your trading skills, you might want to stick to crypto pairs that have demonstrated greater resilience and stability price-wise.
Exchange Platforms
Exchange platforms also play a key role in your crypto trading journey. After you’ve decided which pair you’d like to trade, you need to find a platform that can support your trading endeavors and offer the pairs you’re interested in. Reputable exchanges like Binance are your safest bet, as they provide a wide variety of currency pairs and a safe environment to conduct your trades. Keep in mind that centralized exchanges also allow trades between crypto and fiat, whereas decentralized platforms only allow for crypto-to-crypto transactions.
For traders who are just starting out, more established pairs such as ETH/BTC or BTC/USDT with higher trading volumes and liquidity are often the best choice. There is generally more data on these pairs that can help you conduct more in-depth analysis and determine potential outcomes. Trading conditions for these assets also tend to be more favorable, which can lead to smoother transactions and reduce the risk of price movements affecting your trading results.
Crypto pairs trading is a common trading strategy, but mastering it requires research and preparation. So, if you’re planning to get into crypto pairs trading, be ready to dedicate a lot of time and attention to monitoring the market and building up your strategy.
