A cryptocurrency trading pair is just the combination of two cryptocurrencies, which can be traded against each other on crypto exchanges. A crypto trading pair is obtained by correlating the two cryptocurrencies, then arriving at their relative value to one another.
Cryptocurrency pairs are currencies that can be exchanged for one another on a cryptocurrency exchange. This means that a Bitcoin may be traded for several Ethereum. These exchanges are almost never conducted on a one-to-one basis. A pair is essentially a conversion rate for cryptocurrencies.
It is important to differentiate between two types of trading pairs, as one can trade cryptocurrencies with fiat currency as well as one crypto for the other.
Similar to a stock market, cryptocurrency pair trading should take place between two related digital assets. The prices of cryptocurrencies are continuously moving relative to each other, and thus, a pair of trading measures the difference (percentage gain/loss) between either crypto and another crypto, or between one crypto and a fiat currency. Much like trading in traditional currencies, crypto exchanges rely on crypto trading pairs to illustrate the value of each coin.
The term crypto pairs may also refer to a framework cryptocurrency exchanges use to set a consensus value to trade. Crypto Pairs are important as it allows individuals to easily compare prices among various cryptocurrencies, as well as to exchange your desired cryptocurrency for a variety of other cryptos. Cryptocurrency trading pairs are a crucial part of crypto-economics because they enable the easiest exchange of one coin for another.
Crypto Exchanges and Their Approach to Pairs
Some crypto exchanges do not offer trading pairs between cryptos and fiat currencies like USD, however, companies like Gemini, Coinbase, Binance, and Kraken do. Certain cryptocurrencies are buyable with other cryptos alone, so learning trading pairs becomes quite important if you are looking to extend your cryptocurrency holdings outside of major coins.
In case you are not confident in your ability to trade, it may be smarter to stick with cryptocurrencies that have been on the crypto markets for a while now, with large numbers of holders, trade volumes, and market caps. When you have BTC, ETH/BTC, BNB, Ripple, or any of the other top cryptos on your trading pair, then you can rest assured that the trading pair is going to have high trading volumes and will draw lots of liquidity to crypto exchanges.
The best pairs to trade are the high-liquid pairs like BTC/USDT, ETH/USDT, and other cryptos with a large market cap. If you decide to sell BTC to purchase another cryptocurrency, like Ethereum (ETH), that transaction would involve a trading pair of BTC/USD. In a worst-case scenario, the trader would have to trade the Ethereum (ETH) first into USD, then trade this amount of USD into XRP. The process will be almost identical to trading one cryptocurrency against another, except the digital assets will be traded against fiat currencies such as USD, EUR, GBP, etc.
How Exchanges Offer Pairs
Typically, the exchange will offer different pairs, and you can pick and choose which to use depending on which currencies you already own. If the exchange lists trading pairs, that means that you can trade these two assets against each other, and see the relative values of the two assets, regardless of their fiat values.
Pair trading is a trading strategy borrowed from the stock market, in which traders select two highly correlated stocks and buy one when their prices diverge, and sell the other. Pair trading in cryptocurrency is a market-neutral trading strategy, which allows traders to profit by holding long and short positions, which captures the value of correlation differences between the two assets.
As a market-neutral strategy, cryptocurrency pair trading does not benefit you financially should the Bitcoins price skyrocket. This market-neutral strategy is especially well-suited for crypto investing because of its high volatility, which causes frequent, rapid price rises and falls.
Often called a market-neutral strategy because it is possible to make money no matter which way the market is moving, crypto pair trading involves buying and selling two closely related currencies at once, with the expectation that one of them will outperform the other. The selection of crypto pairs depends on one’s trading strategy, tolerance for volatility, and individual sensitivity towards particular instruments.
How Successful Trades Are Conducted
To trade successfully from one crypto coin to the next, you will need either to find an exchange that supports this trading pair or perform multiple transactions across several pairs to get the result that you are looking for. For instance, if a trader wants to trade Ethereum (ETH) for Ripple (XRP), they will have to find an exchange that supports this pairing.
Keep in mind that, whereas centralized exchanges such as Binance or Coinbase let you purchase cryptos with fiat currency, decentralized exchanges (DEXes) such as PancakeSwap or Uniswap lack this functionality, so the only way to transact there is by using crypto-to-crypto pairs, or trading with stablecoins pegged to the U.S. dollar, such as USDT, USDT, or USDC. For instance, you could trade Bitcoin (BTC) vs. Ethereum (ETH), Cardano (ADA) vs. Solana (SOL), Ethereum vs. Link, and others.
With trading in a CFD, you get to trade uncommon pairs you would not otherwise see on regular exchanges. You can typically use a crypto market aggregator tool to quickly identify what coin or token pairs are available, along with the exchanges offering them and their volume of trade, for a coin or token that you wish to buy.
Crypto trading pairs can be a bit tricky to wrap your head around, because they are priced by their base pairs (with ETH/BTC BTC being the base pair, and BTC/USD USD being the base pair), but can also provide great advantages for those that time their trading correctly.