Cryptocurrency trading pairs are simply the representation of two cryptocurrencies that can be traded for each other. It shows two different assets that can be bought for the other at certain prices controlled by market forces.
In principle, there are two types of cryptocurrency trading pairs: crypto/crypto and crypto/fiat pairs. The former involves two cryptocurrencies on both sides allowing the trader to buy or sell in cryptocurrencies while the latter has fiat and cryptocurrencies. The crypto/fiat pair makes it possible to buy or sell crypto for fiat or vice versa.
Examples of crypto/crypto pairs are BTC/ETH, and BTC/ADA while crypto/fiat pairs can be seen as BTC/USD or USD/SOL.
Read also:
How to Protect your Crypto Trading Portfolio
Crypto Trading: How to Protect Against Liquidation
What are Candlesticks? How to use them
How to Open a Binance Account and Make Your First Trade
Base currency and Quote currency
For each cryptocurrency pair, there is always a base currency and a quote currency. The base currency (also known as transaction currency) appears first currency in a currency pair quotation, while the quote currency (also known as counter currency) is the second currency in a currency pair quotation.
The quote currency is used to value the base currency. The quote currency shows the amount of the quote currency that’s needed in exchange for one whole unit of the bar currency. Here’s a typical example:
BTC/USD – $25,087
How much USD is needed to buy one unit of BTC? In the example above, the answer is $25,087. Thus, the value of the quote currency in a pair is the amount needed to buy a single unit of the base currency whether it’s BTC or SOL.
If turned the other way round, USD/BTC, the question now becomes: how many BTC will be needed to buy $1? This is how cryptocurrency trading pairs work.
Most popular trading pairs, and how to choose a cryptocurrency trading pair
The most popular cryptocurrency trading pairs always include BTC, ETH, USD, and stablecoins like BUSD, USDC, USDT, etc. The popular trading pairs you’ll find on exchanges are BTC/USDT, BTC/ETH, ETH/USD, ETH/BUSD, BTC/BUSD.
Before you choose a cryptocurrency trading pair, it’s important to:
- know about the trading volume of the pair you’re about to select;
- verify the liquidity of each asset in the market;
- check the volatility of the assets as well.
Having a grasp of how cryptocurrency trading pairs work will take time. As you practice trading, always make sure to DYOR research before taking any decision on trading.
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