What Are Trading Pairs in Cryptocurrency?
“Trading pairs” or “cryptocurrency pairs” are assets that can be traded for one another on a cryptocurrency exchange, such as Bitcoin/Litecoin (BTC/LTC) and Ethereum/Bitcoin Cash (ETH/BCH). Trading pairings allow you to compare the costs of several cryptocurrencies.
“Trading pairs” or “cryptocurrency pairs” are assets that can be traded for each other on a cryptocurrency exchange. Bitcoin/Litecoin (BTC/LTC) and Ethereum/Bitcoin Cash (ETH/BCH) are two instances of trading pairs.
Investors should be aware of trading pairs for two reasons: Because some cryptocurrencies can only be purchased with other cryptocurrencies, understanding cryptocurrency pairs is essential for diversifying your crypto holdings beyond the most common coins; additionally, understanding cryptocurrency trading pairs allows savvy crypto investors to profit from price differences between markets.
- How Do Crypto Trading Pairs Work?
- What Is a Base Currency and Why Is It Important?
- Which Cryptocurrency Pairs Aid in Arbitrage Opportunities?
How Do Crypto Trading Pairs Work?
Cryptocurrency pairs enable you to compare the costs of several cryptocurrencies. These comparisons show 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 the currencies you already own. If you hold Bitcoin (BTC), for example, you can trade with any pairing listed on an exchange that accepts BTC.
While some crypto exchanges do not offer trading pairs between cryptocurrencies and fiat currencies like the US dollar (USD), others, such as Gemini, Coinbase, Binance, and Kraken, do. BTC and ETH are the most adaptable cryptocurrency pairs to trade because they offer the most exchange alternatives.
What Is a Base Currency and Why Is It Important?
To get the most out of crypto trading pairs, you must first learn about base currencies. A base currency is a technique of expressing a mutually agreed-upon value for various assets.
Base currencies are widely used to compare exchange rates between fiat currencies in various countries. When an American travels to Italy, they will need to exchange their currency for the Euro, which is the Italian currency. The USD is used as the base currency in this situation.
Crypto assets are subject to the same rules.
If you want to trade lesser-known crypto on an exchange, you’ll almost certainly need to own one of the base currencies listed in the pair first.
The most popular cryptocurrencies (BTC, ETH) are used as base currencies in most cases, but accepted base currencies differ from each exchange. Investors should double-check which base currencies are accepted at their preferred exchange, as well as which trading pairs the exchange offers, before delving into trading pairs.
Many exchanges also provide stablecoin trading pairs, which are usually pegged to the US dollar. These stablecoins might use a mechanism like DAI to retain one-to-one physical reserves of USD.
Which Cryptocurrency Pairs Aid in Arbitrage Opportunities?
It can be difficult to choose cryptocurrency pairs to use in an arbitrage trading strategy. Some cryptocurrencies are more correlated between exchanges than others, and when the correlation is low, arbitrage opportunities emerge.
BTC is the most extensively traded and integrated digital asset in the cryptocurrency market.
When you employ trading pairs with low trading volume or trade on an exchange that isn’t commonly used, though, correlation tends to weaken. This leads to market illiquidity, which provides a chance for arbitrage. Arbitraging bitcoin trading pairs is a pretty complicated trading strategy that is not suggested for newcomers to the cryptocurrency market.