What are the trading pairs for cryptocurrencies? – A Tutorial For Beginners

What are the trading pairs for cryptocurrencies A Tutorial For Beginners

Crypto and stablecoin trading pairings have made it easier for people all over the world to buy and sell digital assets without incurring excessive transaction fees.

Exchange Rates for Cryptocurrency Pairs

Users of cryptocurrency exchanges can trade cryptocurrencies with one another using crypto trading pairs, eliminating the need to convert their cryptocurrency holdings to fiat currency. To make trading cryptocurrencies easier, many exchanges provide a variety of trading pairings. Trading pairs in cryptocurrencies are in great demand, making it essential for cryptocurrency exchanges like Coinbase, Binance, and KuCoin to offer them.

In a token-based barter system, cryptocurrency trading pairs can function as a means of exchange. If the user wants to acquire a cryptocurrency that can only be bought with another cryptocurrency and not with regular fiat currency, these exchanges can be useful. Understanding cryptocurrency trading pairings can also help investors diversify their holdings beyond the most widely used tokens.

Investors can benefit from arbitrage trading methods by gaining knowledge about crypto trading pairs. We’ll get into this in further depth in the following section. Bitcoin/Litecoin (BTC/LTC), Ethereum/Bitcoin Cash (ETH/BCH), and many others are all examples of possible cryptocurrency trading pairs.

Following this introduction, we will go into the specifics of cryptocurrency trading pairs and how they might benefit investors looking to make a profit.

How Cryptocurrency Pairs Work in Trading.

Trading pairs in the cryptocurrency market allow investors to compare prices across multiple digital currencies. As a result, investors can learn about the relative values of different cryptocurrencies and make informed decisions.

In contrast to the Bitcoin to USD conversion, trading pairs such as the BTC to ETH conversion show the value of one cryptocurrency in terms of another directly, without first being converted to fiat currency. As was previously said, cryptocurrency exchange platforms typically provide access to trading pairs, with some providing an astounding array of pairs involving combinations of various established and emerging cryptocurrencies.

Let’s use the scenario of an American planning a trip to France as an example to better illustrate this point. To create a realistic budget for the trip and avoid any unpleasant surprises, the traveler must first learn the direct currency exchange rate between the nations. One dollar in American currency is currently equivalent to one euro in France. If a tourist knew this, it would simplify their shopping experiences in France.

To continue with the aforementioned example, if the traveler wishes to visit the United Kingdom after his visit to France, he can use the EUR/GBP trading pair to directly convert his Euros into British pounds, saving him the trouble and expense of converting his Euros back into USD before exchanging them for British pounds.

The Bitcoin/Ethereum trading pair is now the most valuable and hence the most popular trading pair on cryptocurrency exchanges. In light of this, let’s talk about why cryptocurrency trading pairs are so important in the crypto market.

Why Do Markets Use Cryptocurrency Trading Pairs?

The primary goal of crypto exchange pairs is to facilitate the instantaneous buying and selling of cryptocurrencies without the need for a third party to intervene and convert the cryptocurrency into its corresponding fiat money. While for some unsophisticated traders, switching to fiat money isn’t a significant deal, for others, it can have a devastating effect on their track record and future earning potential.

When there is a greater volume of trading, as is the case when there is more conversion, more trading fees are collected. These fees mount up quickly without trading pairings, and eventually can result in a loss of capital for investors. Instead of paying that fee, the customer may have used that money toward other investments or trades that would have benefited them.

Let’s have a look at an example to see how this works in practice. Let’s say a trader already owns 0.005 BTC and wants to buy some ETH. In the present day, the estimated fee for each Bitcoin blockchain transaction is $1.85, which the investor will have to cope with.

When purchasing Ethereum, however, the gas fee is extremely minimal, at only about $0.00008, but this valuation is subject to change. On May 1st, 2022, the Ethereum transaction cost would have been $0.001, for an approximate increase of 1,150 percent. Considerable variation of this magnitude is problematic.

In order to acquire less-popular cryptocurrencies, most cryptocurrency exchanges offer the option of purchasing them by swapping them for another coin. Stablecoin trading pairs are offered by some cryptocurrency exchanges. Stablecoins make it much simpler to determine the value of one coin over another because most of them are pegged to the dollar.

The use of trading pairs was not an option in the early days of the crypto industry, when there were only a handful of blockchains in existence. But recently, as hundreds more cryptocurrencies and blockchains have emerged, the number of trading pairings has skyrocketed, making them an appealing option for those seeking instantaneous cryptocurrency conversion without the need for intermediary fiat currency.

As a second illustration, we might think about the Bitcoin/Ethereum trading combination, which is now the most lucrative trading pair in many cryptocurrency exchanges. At the time this article was written, one Bitcoin was worth about 15 Ethereum. Direct crypto-to-crypto trading, unencumbered by fiat currency, is made possible by decentralized exchanges (DEXs).

Since we’re talking about decentralized exchanges, you’re probably wondering if there will be a gas fee to pay. While this is true, it’s important to remember that the number of transactions would decrease; for example, instead of completing two transactions when exchanging Bitcoin for Ethereum, you’d only need to complete one.

To top it all off, the transaction fees on Ethereum-based decentralized exchanges are rather small. If time is of the essence for your transaction, you have the option of paying a higher gas charge to ensure that miners give it first attention.

Comprehending Cryptocurrency Pairs in Trade

Even though it may seem like child’s play to read a crypto trading pair, there are actually a few subtleties that must be mastered in order to do it successfully. According to the aforementioned notations, the two combinations of three characters each that represent crypto trading pairs are highlighted by a single backslash. For simplicity’s sake, let’s use the notation BTC/ETH to emphasize the Bitcoin/Ethereum trading pair.

Learning the difference between the “base currency” and the “quote currency” is the first step in forex trading. To properly describe a crypto trading pair, the base currency must be mentioned first. All that it really means is the amount of cryptocurrency that needs to be swapped out. If we take the Bitcoin/Ethereum trading pair as an example, we know that Bitcoin serves as the “base” currency.

Continuing with the earlier traveler example, if the person is from the United States and going to England, the dollar will serve as the base currency. In order to buy or sell a cryptocurrency on an exchange, the user must first possess some of the base currency (which is always a cryptocurrency). Traders should verify the cryptocurrency exchange’s base currency and pair acceptance before making any deposits.

When defining the base currency, the next step is to determine the quote currency. Using BTC/ETH as an example, the quoted value would be in ETH. A trader’s quote currency is as important as the base currency, thus both should be well thought out before any significant actions are taken. The exchange rate and trading path between two cryptocurrencies are determined by both of them working together.

Utilizing Exchange Rate Disparities for Arbitrage Trading

The high degree of volatility in the cryptocurrency market has led to the development of arbitrage trading strategies between token transactions. For the most part, arbitrage trading refers to the practice of swiftly purchasing and selling tokens across many marketplaces in order to profit on fluctuations in token prices. Further, the requirement to exchange tokens for fiat and then back into tokens is eliminated when trading pairs are taken into account, as the resulting net amount of tokens and fiat is zero.

Constructing an effective arbitrage trading strategy for cryptocurrency trading pairs can quickly become complex. Since arbitrage trading strategies are only viable when this communication level is low, it can become difficult to determine which crypto exchange has what level of communication between cryptocurrencies, especially since the level of communication varies across different types of cryptocurrency pairs.

The term “correlation” is often used to describe this type of relationship or interaction. Despite Bitcoin’s continued dominance as the market’s most actively traded asset and most widely used cryptocurrency, correlation levels decrease when using trading pairings with low trading volumes or when using an obscure cryptocurrency exchange. Due to this, the market becomes more liquid, which encourages the growth of arbitrage trading techniques.

It should be highlighted, however, that only seasoned traders should employ arbitrage trading methods, as they are extremely difficult and sophisticated and can result in disastrous outcomes in the hands of inexperienced traders.

Linked Stablecoins and Cryptocurrency Trading Pairs

Users interested in stablecoins can find trading pairs for them at a number of different exchanges worldwide. Binance and KuCoin, two of the most well-known cryptocurrency exchanges, each provide a wide selection of stablecoin trading pairings. US dollar-backed stablecoins like tether (USDT), USD Coin (USDC), and Binance’s native Binance USD are the most popular trading partners, according to market data (BUSD).

The high market capitalizations attained by these pairs of trade are a direct result of their widespread appeal. Additionally, the stablecoins can be used in conjunction with mainstream cryptocurrencies like Bitcoin and Ethereum. You may buy Bitcoin with USDT, Ethereum with BUS, Cardano with USDC, and many other stablecoins in similar ways.

Stablecoin trading pairs, which are tied to the US dollar and hence to traditionally defined fiat money, can make determining exchange rates simpler for traders, as was indicated above.

Putting Money in a Decentralized Exchange.

Many new traders in the crypto industry believe that keeping their cryptocurrency assets in an exchange wallet is the easiest option because their initial investments may be added directly to the exchange wallet. However, it is important to keep in mind that there is no assurance that these platforms can withstand sudden changes or hacking attempts.

Since 2016, the number of hacking and exploiting assaults has skyrocketed, with hackers stealing millions of dollars’ worth of assets from various cryptocurrency exchange wallets by exploiting flaws in the exchanges’ fundamental security architectures.

Further, there are a few other considerations to make when investigating centralized cryptocurrency exchanges.

In the first place, you can never know who has access to your wallet’s private key. There are two types of keys associated with a digital wallet: the public key and the private key. If you want to get paid, you can send money to the public address associated with your public key. Because it can only be used by the owner of the wallet, the private key must be kept secret.

Your private key information is kept by the bitcoin exchange in the event of centralized wallets powered by the exchange. In the event of a private key recovery, this could be useful, but in general, it is recommended that you use private wallet services and protect your private key.

Orizu Augustine
Orizu Augustine is an experienced crypto writer working for Alltechcraft. Having passion for writing, he covers news articles from blockchain to cryptocurrency and iPhone and Samsung related articles.