Common crypto trading pairs explained

For example, if you aim https://www.xcritical.com/ to exchange Tether (USDT) for Bitcoin (BTC), you would be engaging in a USDT/BTC trading pair. In this example, USDT presents the base currency while Bitcoin assumes the role of a quote currency. Some cryptocurrencies and pairs do have a certain price correlation where they follow each other but not always. Since Bitcoin is so tied to the entire cryptocurrency market many of them tend to follow it, but sometimes there is some deviation.

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Having BTC as crypto connections a base trading pair provides a more stable benchmark to value other crypto assets. For example, Bitcoin has high liquidity because its large market cap and trading volumes mean traders can easily find counterparties to buy/sell BTC. Small cap coins have low liquidity because there may not be enough buyers/sellers readily available.

Different Types of Trading Pairs

When you execute a buy order for the LTC/USDT pair, you’re essentially using USDT to purchase LTC. On the other hand, when you set up a sell order, you’re selling LTC in exchange Stockbroker for USDT. If ETH goes down, the short position offsets some losses on the long position.

Main Types of Cryptocurrency Pairs Trading

The more traders are involved, the fewer complications could happen with a crypto-cross trading pair. In simple terms, you are essentially buying one digital asset while simultaneously selling the other one. Trading pairs are crucial when it comes to the analysis of the cryptocurrency market and current market conditions.

Factors to Consider When Choosing a Crypto Pair for Futures Trading

BTC and ETH are the most adaptable cryptocurrency pairs to trade because they offer the most exchange alternatives. However, when we talk about crypto pairs or trading pairs, we generally refer to something different. The term “cryptocurrency trading pairs” usually refers to the way that a buy and sell order is matched on a crypto exchange.

Coupling the inflation in the price of one asset with the deflation of another can reduce downside risk when trading. However, pair trading usually requires a lot of capital to turn a profit. It can be challenging to identify sufficient correlations between assets to begin with. Plus, expected outcomes often vary from actual outcomes when relying so heavily on historical data. The pair trader buys an underperforming stock and short sells the overperforming stock.

• Market takers, on the other hand, agree with the prices listed on the order book and execute their trade immediately.
• Even if a pair looks good profit-wise, low trading volume can outweigh that.
• Fiat-to-crypto trading pairs are typically favoured by traders that just entered the crypto space.
• However, trading pairs help traders to understand the value of crypto assets without relying on fiat currencies as a point of reference.
• Bitcoin is by far the most popular trading pair, with the majority of coins’ volume concentrated here.
• It is the price of the base currency quoted using the quote currency.

If you don’t have access to crypto, you can purchase directly using the tools in the “Buy Crypto” section. Partners such as Simplex and Moonpay make it easy to purchase USDT using a credit card, allowing you to trade. Some of the best decentralized exchanges are Uniswap on Ethereum, Jupiter on Solana, and PancakeSwap on BNB smart chain. This means if they get hacked or become insolvent like FTX, you could lose Your money.

If the Pepsi stock price increases and the Coca-Cola stock price decreases, we could create a long position on Coca-Cola and a short position on Pepsi. When the price of Pepsi stock goes down, and the price of Coca-Cola stock goes up, a successful pair trading strategy would yield better returns than only making one of those bets. A trading pair shows how much base currency is needed to buy one unit of the quote currency. Using another example, if ETH/USD trades at $1,319, you will need 1,319 USD to buy one ETH. To purchase the base currency, a trader needs to have the quote currency in possession. Traders determine the price at which they aim to buy and the amount of the quote currency they want to put in for the trade.

For more information on exchanges and how they work, read What Is the Crypto.com Exchange? Or, if luck’s on your side, you could snag a sweet deal if you can fill a demand gap. However, most of the time, sticking with good ol’ reliable BTC for trading might be your safest bet.

Charts like this allow traders to estimate how susceptible the price is to buy or sell orders and gauge likely support and resistance levels. The effect of price slippage is why it is important for exchanges to have sufficient market depth; otherwise, it becomes very costly for traders to transact. The higher the market depth (i.e., the quantities on either side of the order book), the lower the slippage. We can see that market orders are used by traders who demand immediate liquidity, paying the difference between the bid and ask price. In financial markets, using a market order is called ‘crossing the spread’.

This might soon deplete whatever charge savings you might have made. It’s critical to consider all of the variables involved in your potential deal when selecting a pair. The first step, of course, is to make sure that the exchange you wish to trade on will enable you to utilize that specific base currency, as each one has its own set of possibilities. Bitcoin is by far the most popular trading pair, with the majority of coins’ volume concentrated here. Once submitted, the exchange automatically matches the order with the lowest-priced offer(s) in its system. It then subtracts the corresponding fiat currency from the user’s account and credits them with ownership of the token they purchased.

I’ll also provide actionable tips on how to choose a pair and develop effective crypto trading strategies around them based on my extensive knowledge. Price movements within trading pairs offer valuable information about market sentiment and potential trends. Upward movements indicate buying interest, while downward shifts may suggest selling pressure. Analyzing these movements allows traders to adapt their strategies and make decisions aligned with market dynamics, ultimately influencing the success of their trades.

The best pairs to trade are pairs with high liquidity, large market cap, and great volume. To minimize your trading risk, you should opt for pairs involving cryptos that rank highly by market cap, such as BTC/USDT, ETH/USDT, ADA/USDT, or SOL/USDT. Yes, crypto exchanges are legal in most places, but you should check your country’s rules first. The most reliable crypto exchanges like Kraken, Coinbase, and Binance are safe to use. But remember, nothing is 100% safe like exchanges can get hacked, so don’t leave all your money there. Centralized exchanges handle everything for you, from cryptocurrency trading to storing funds temporarily.

Gianluca loves learning new things, researching, discussing and writing about technology, especially when it comes to cryptocurrency and blockchain technology. Take sufficient time to learn and practice trading crypto pairs with small amounts first. The exchange rate between the two currencies in a trading pair fluctuates based on supply and demand. If more people want to buy Bitcoin, the price of BTC goes up compared to USDT.