As cryptocurrency gains more popularity, understanding the logic behind crypto pairs becomes essential, especially if you’re planning to trade digital assets. In the early days of cryptocurrency development, traders could only exchange one type of crypto for another. However, as the market grew and evolved, other cryptocurrencies became popular, and altcoins emerged on the market. Now there are thousands of cryptos on the market, and most current exchanges feature fiat currencies in addition to crypto trading pairs.
For example, you might come across a trading pair that enables you to convert EUR to Ethereum or USD to Bitcoin. These trading pairs are typically used by traders new to Bitcoin who want to conduct their trades using familiar currencies. In this guide, we will explain the basics of trading pairs, the different types of pairs available, how they work, and how to read them. So, let’s get started!
What are Crypto Trading Pairs?
In cryptocurrency trading, a trading pair describes the two currencies being exchanged against each other. For instance, the trading pair would be BTC/USD if you wanted to purchase Bitcoin using US dollars. The base currency of the trading pair is Bitcoin (BTC), and the quote currency is the US dollar (USD).
Different Types of Trading Pairs
As mentioned earlier, you can trade fiat currencies to get crypto or trade one cryptocurrency for another. However, these aren’t your only options. Let’s look at the three main trading pairs you will likely come across when you invest.
1. Fiat Currency Pairs
Trading cryptocurrencies against conventional fiat currencies like US dollars, Euros, or British pounds is known as trading in “fiat” pairs. Beginners and traders who want to purchase or sell cryptocurrencies using their home currency frequently utilise these pairs. You will likely find that the most common fiat currency to be traded for crypto is the US dollar, largely because there are many US crypto investors. Some of the most popular fiat currency pairs are:
- Dollars (USD) for Ether (ETH)
- Dollars (USD) for Bitcoin (BTC)
- Dollars (USD) for Tether (USDT)
- Dollars (USD) for Cardano (ADA)
- Dollars (USD) for Polygon (MATIC)
Regional exchanges use several fiat currencies in various ways, with the local exchange’s national currency frequently ranking among the most popular base pairs. Many traders prefer to use these pairs to cash out easily due to fiat currencies’ widespread acceptance.
2. Crypto Base Pairs
In cryptocurrency trading pairings, one cryptocurrency is traded against another. The first cryptocurrency, Bitcoin, was also the first to gain widespread popularity and is still the most widely traded to this day, followed closely by Ethereum. While the list of the most popular crypto-to-crypto trading pairs changes with the market, some of the most common BTC and ETH trading pairs include:
- Bitcoin (BTC) for Ether (ETH), and vice versa
- Bitcoin (BTC) for Dogecoin (DOGE)
- Ether (ETH) for Bitcoin Cash (BCH)
- Ether (ETH) for Chainlink (LINK)
- Bitcoin (BTC) for Stellar Lumens (XLR)
These pairs are frequently used by seasoned traders who want to exchange one cryptocurrency for another.
3. Stablecoin Trading Pairs
Stablecoin trading pairs involve the exchange of cryptocurrencies for stablecoins. Stablecoins are cryptocurrencies linked to a stable asset, such as the US dollar. These pairs are popular among traders who want to limit their exposure to cryptocurrency volatility.
Any exchange will provide multiple stablecoin base pairs, with some presenting their own personalised stablecoin. The Gemini exchange, for instance – has its own stablecoin called the Gemini dollar (GUSD). The first stablecoin was released in 2014 – Tether, also based on the US dollar. It’s one of the most commonly traded digital assets to date. Here are some popular stablecoin trades using USDT:
- Tether (USDT) for Bitcoin (BTC)
- Tether (USDT) for Dogecoin (DOGE)
- Tether (USDT) for Litecoin (LTC)
While USDT remains the most popular stablecoin pair, many stablecoin alternatives are gaining market share. Make sure to keep an eye out on current market demand if you want to choose a popular stablecoin.
How Do Crypto Trading Pairs Work?
The value of a trading pair is impacted by the fluctuating price of the base cryptocurrency. For example, if you want to purchase Bitcoin for US dollars, you’ll need to look up the quote price of the dollar and how much Bitcoin you can buy for that money. To do this, you would require knowledge about Bitcoin’s current price in US dollars if you wanted to purchase BTC/USD.
To make a trade, you need to place an order on a cryptocurrency exchange or trading software. Your order will then be matched by the exchange or software with one from another trader on the platform. The exchange will typically take a small commission after a deal is completed as payment for handling the transaction.
How To Read Crypto Trading Pairs
When you’re looking at a trading pair, you’ll usually see it listed in the form of “ABC/XYZ”. The first part (ABC) represents the cryptocurrency that you want to purchase, and the second part (XYZ) represents the crypto or fiat currency that you will use to purchase it. Keep the following points in mind when reading trading pairs:
- Base and Quote Currencies: Every trading pair consists of a base currency and a quote currency. The currency you want to purchase is the base currency, and the currency you are using to purchase it is the quote currency. For example, if you want to buy BTC for ETH (BTC/ETH), Bitcoin is the base currency, while Ethereum is the quote currency.
- Bid and Ask Price: The bid and ask prices are typically the two rates you see when viewing a trading pair. The ask price is the lowest amount someone is willing to sell the base currency for, and the bid price is the highest price someone is currently ready to pay for it.
- Market and Limit Orders: You can place an order to buy or sell a trading pair at the going market price or by setting a limit order. While limit orders are only carried out when the price reaches a specific threshold, market orders are carried out instantly at the current market price.
- Volume and Liquidity: When trading cryptocurrencies, it’s crucial to be aware of a pair’s trading volume and liquidity. Volume is the amount of a trading pair that is purchased and sold, whereas liquidity is the ease with which one can buy or sell a trading pair without having an impact on the price.
Where To Trade?
There are several ways for you to trade cryptocurrencies. You can start by registering at a crypto exchange, such as Gemini, Kraken, or Coinbase, which are currently the most popular, but there are plenty more to choose from.
Another option is to use a matching service like Immediate Connect. Matching platforms have gained unprecedented popularity in recent years, and experts continue to recommend them to traders for their security and versatility. The website connects traders of all experience levels to one of your area’s many skilled crypto brokers. This is perfect, especially if you are a beginner and need some help kickstarting your trading.
By using a matching service, you can get insight into trading opportunities that aren’t otherwise publicly available and use all your broker’s tools at your disposal. Once you’ve established contact with your crypto broker, you can take advantage of their expertise to enhance your trading portfolio and steer clear of common rookie mistakes.
Also Read: Top 10 Cryptocurrencies To Look Forward to in 2024
Factors That Affect Crypto Trading Pairs
Cryptocurrency trading pairs are impacted by various factors. Below, we have outlined some of the primary determinants and provided a brief explanation of each:
- Supply and demand: Like any other asset, supply and demand play a crucial role in determining the price of a cryptocurrency trading pair. If there are more buyers than sellers, the price will go up, and vice versa.
- Market mood: The mood of the market can also influence the value of a cryptocurrency trading pair. Good news or events involving one or both cryptocurrencies in the pair can increase demand and drive up prices, while bad news or occurrences may reduce demand and lead to a price drop.
- Adoption and acceptance: The level of adoption and acceptance of the cryptocurrencies in the trading pair can also impact their value. If more people start using and accepting a specific cryptocurrency, its price may rise.
- Regulations: Changes in legislative or governmental policies regarding cryptocurrencies can also affect trading pairs. For example, if a government prohibits the use of a cryptocurrency, there may be little demand and lower prices.
- Competitors: Competition from other cryptocurrencies can also impact trading pairs. If a new, innovative cryptocurrency emerges, it could divert interest away from existing trading pairs, leading to a price drop.
It’s worth noting that these factors are not exhaustive, and other elements can influence crypto trading pairs. Additionally, cryptocurrency prices can be incredibly volatile and subject to rapid fluctuations in response to new information or events. Therefore, it’s crucial to conduct research and make well-informed decisions before trading.
The Bottom Line
In conclusion, understanding crypto trading pairs is essential for anyone looking to trade cryptocurrencies. Familiarizing yourself with the different types of trading pairs, how they work, and the factors that determine their prices can help you make informed trading decisions and improve your portfolio.
