Trading cryptocurrencies is a little different than trading other assets such as commodities or stocks. While most trading operations are akin to one another, and even indicators can be reused, there is one metric i.e. trading pairs that differ crypto trading from stock trading.
Cryptocurrencies are usually traded against other cryptocurrencies, and if you are not well-versed in trading pairs, then this article will help you to garner in-depth knowledge of this key element of crypto trading.
What is a cryptocurrency trading pair?
The term “trading pairs” describes a trade between two different cryptocurrencies. In most cases, people use BTC to trade against another cryptocurrency on a digital asset/bitcoin trading platform, but there are many other pairs that you can leverage.
How do trading pairs work?
Trading pairs come in handy to establish the value of a cryptocurrency when it is traded against another cryptocurrency. It generally works by comparing the value of an asset for another. Let’s understand this phenomenon with a simple example:
Suppose, there is a guy named Eric who possesses one BTC and wants to purchase Ethereum. He signs up on a digital asset exchange platform and navigates towards the ETH/BTC trading pair. The exchange then displays the current value of Ethereum and if Eric agrees to its price, he places an order to sell half of his BTC for ETH.
ERIC was able to execute this trade because he already owned bitcoin, which was a base trading pair. If he had XRP instead of BTC but there is no trading pair on the exchange for XRP, then his trade would look different. So, make sure to choose the best crypto exchange that offers every kind of crypto trading pair to facilitate quick trading.
What is the difference between crypto trading pairs?
Though there are various trading pairs on an exchange which works the same way, you must be aware that the value for each pairing could be much different. This is because every pairing has its own bids and asks, and depending on demand, you could pay a premium with these pairs, or maybe get a good deal upon fulfilling a demand. Besides, if you trade using BTC, there are more chances to gain profits.
How to choose a crypto trading pair?
Always make sure to choose a trading pair by taking the current trading volume into consideration in order to reap benefits. If a pair has a low trading volume, then you could have to wait for a long time to find the perfect match. So, count on a trading pair which has a high trading volume to make a good deal in a couple of seconds.
Trading pairs base currency
The base currency is one that is deemed as a common trading pair on a cryptocoin exchange. In most cases, base currency typically comprises BTC and ETH as they are the most popular cryptocurrencies one could invest in. However, some exchanges also offer their own base currencies. This could include ZedXe’s ZFL, which is its own native token.
Different exchanges accept different base currencies. You can check the base currency pairs available on an exchange to find a perfect pair for you.
Correlation between cryptocurrency trading pairs
Some crypto trading pairs have a certain value correlation where they follow each other. Since Bitcoin has gained the most momentum in the crypto market, many pairs tend to follow this maiden currency, but sometimes there is a certain deviation. This can only be true if you are using an exchange or a pairing having low trader count. In this scenario, all the demands can be fulfilled within bitcoin base currency, which in turn, lowers the liquidity of other pairings.
Cryptocurrencies are rapidly gaining mass adoption as they offer enormous benefits to new and experienced traders. But it is paramount to invest in a cryptocurrency having high liquidity and choose the best trading pair to harness the potential of the cryptocoin market.