Have you ever heard the proverb that goes,” All good things come in pairs.”? While it may not apply to all aspects of life, it’s definitely relevant in the crypto landscape. There are lots of concepts in crypto that you need to understand if you want to succeed in this market, and one of them is crypto trading pairs. However, since navigating the industry on your own can be daunting, in this blog, we aim to shine a light on this notion, so that you can start your crypto trading journey with confidence.
Understanding crypto trading pairs
A trading pair comprises two different assets that you can trade against each other in exchange. Traders can exchange their cryptocurrencies for other cryptocurrencies, such as BTC – a leading asset in the industry – or for stablecoins, like UST, USDT, and USDC, which represent crypto pegged to the US dollar. It’s also possible to trade crypto against USD or another fiat currency on popular exchanges, and the process is similar to trading one crypto against another, the only difference being that digital assets will be exchanged for fiat currencies, like EUR, GBP, and so on.
In trading pairs, whether crypto-to-crypto or crypto-to-fiat, one of them is the “base” currency, while the other is the “quote” currency. For instance, if you trade the eth/btc pair, eth will be the base currency, while btc will be the quote currency. The price shows how much BTC you will need to buy one ETH. Besides the ETH/BTC pair, other common trading pairs include BTC/USD or ETH/USD, and XRP/USDT, but there is a range of options in the market, and it’s always important to keep an eye on the news to decide which pair might be more suitable for you.
Key factors to keep in mind when selecting a crypto trading pair
It’s essential to be smart with the choice of your crypto trading pair, as your goal is to make a profit and not to lose money. Here is a list of some critical steps you should take to achieve this goal:
Make sure the exchange of your choice supports your preferred coins
When looking to trade a crypto pair, you need first to pick an exchange that is secure and reliable. However, keep in mind that while centralized exchanges enable you to buy cryptocurrencies by using fiat money, this isn’t the case for decentralized exchanges, which means you can only trade there with crypto-cross pairs or against stablecoins pegged to the US dollar, such as UST, USDT or USDC. Furthermore, even major centralized exchanges lack the option to buy certain altcoins with fiat money, and it’s only possible to do that with ETH, USDT, BTC and other top cryptocurrencies. Make sure that the crypto exchange of your choice enables you to trade the currencies you want and if you can use a specific currency as a base one. If you aren’t allowed to use your chosen crypto as a base, it’s important to switch to any other currency which you can use or look for another exchange that can meet your needs.
Assess liquidity
Liquidity is undoubtedly one of the most important considerations when selecting a crypto trading pair, and it allows you to determine how easily a currency can be bought or sold without its price suffering significant changes. A crypto pair with significant liquidity is associated with tight bid-ask spreads, which essentially translates into a minimal distinction between the buying and selling prices. As a result, you can sell your assets close to the actual market price.
On the other hand, choosing trading pairs with low volatility can be challenging, as you may have difficulty finding buyers or sellers that will match your desired price. In such cases, you may need to either wait until liquidity improves or adjust your price.
Consider trading volume
Trading volume involves the number of trades conducted in a particular pair throughout a certain period of time. It essentially refers to how liquid a pair is and the price movements that traders should expect in the future.
More volume translates into a more active market for a specific pair. For instance, many investors are active on the BTC/ETH pair, but that’s not really the case when it comes to a pair like SHIB/DOGE. Furthermore, high trading volume pairs are more appealing because they come with shorter spreads and quicker trade execution than pairs with lower trading volume.
Evaluate volatility
Volatility refers to the degree of price fluctuations that a pair experiences. The higher the volatility of a trading pair, the higher the risks associated with it. At the same time, however, choosing a trading pair with higher volatility means you can execute more trading deals in a specific amount of time, and in the end, volatility isn’t always the enemy; in fact, it can be your best friend as long as you approach it with proper risk management.
If you don’t know what your trading abilities are, it can be a good idea to begin with well-established cryptocurrencies rather than choosing highly volatile trading pairs. This is because they have a large number of holders, market cap and trading volume. Of course, if you’ve decided on a trading pair and are confident about trading it with a profit and not a loss, there’s definitely nothing to worry about. But if you are inexperienced, it’s best to stick to coins with relatively low volatility.
The bottom line
Mastering crypto trading pairs is paramount if you want to be successful in the industry, but it is by no means an easy feat. It requires careful analysis, dedication and disciplined risk management. You must take the time to understand the fundamentals and, gradually expand your knowledge through practical experience, and commit yourself to continuous learning.
Furthermore, remember that success comes from a well-structured strategy which aligns with your goals and not from emotional trading or rushed decisions. In the end, cryptocurrencies are volatile, and past performance doesn’t guarantee any future outcome. The value of digital assets can go up and down, and you could lose a substantial amount of your purchase price if you aren’t careful. When assessing a crypto trading pair, make sure to do your own research so you can make the best possible judgement based on your own circumstances and objectives.
