What Are Crypto Currency Pairs & How They Work

If you want to dive into the world of Crypto trading, knowing cryptocurrency pairs is vital. These are nothing but a set of two currencies that are traded against each other on platforms like Binance, Coinbase Pro, Uniswap, Paxful, and OTC. Both currencies can be digital, or one out of two may be a fiat. Let us study about these pairs in depth.

What Is Crypto Currency Pair

The one currency of the crypto pair is known as the base, and the other one is the quote. Both are separated by the slash (/). The first one is called base, and the second one is called quote. Let us take an example – BTC/ETH, and its price is 14 on the exchange platform. Here, BTC is the base, and ETH is Ethereum. The exchange price means that 1 BTC is worth 14 ETH. Put simply, you can exchange 14 ETH for 1BTC.

Other popular examples of crypto pairs are BTC/USDT, ETH/USDT, and BTC/ETH. These are frequently exchanged because of high liquidity. Crypto pairing allows an individual to exchange crypto money without converting it into fiat currency. It also helps to compare the value of one digital currency against another. In-depth knowledge about different pairs enables traders to make an ideal decision about when to enter and exit a trade.

How Crypto Trading Pairs Work?

The trading is very similar to the traditional forex, where the exchange between the fiats of different currencies takes place. For instance, if you have an idea that the value of USDT will increase in comparison to ETH, you can trade your ETH for USDT. Similarly, if USDT is going to decrease in the coming time, it is wise to exchange your USDT with ETH or any other cryptocurrency whose value is estimated to increase. It is as simple as that!

Let us clarify it a little more!

If you buy any pair on any platform, it means you are purchasing a base currency in exchange for quote crypto. Conversely, if you sell a pair, this indicates you are selling a base currency in exchange for a quote.

To do trade, you should have either base currency or quote currency.

Different Types Of Crypto Pairs

Generally, there are three kinds of major crypto pairs: major crypto players, minor crypto players, and exotic crypto pairs.

Major Crypto Pairs:

Bitcoin, Ethereum, and Ripple have dominated the crypto world. Their trading volume is high, and volatility is low. If you are new in the crypto exchange world, these trading pairs are the safe options. Their stability and liquidity make them a favorable choice for big investors and firms.

Minor Crypto Pairs

These are those pairs whose liquidity is a bit low and have a higher volatility rate. But, the good thing is that they offer lucrative trading opportunities, especially for experienced traders. Some common examples of these pairs are –  LTC/BCH (Litecoin/Bitcoin Cash), XLM/ADA (Stellar/Cardano), and TRX/XRP (Tron/Ripple).

Exotic Crypto Pairs

Sometimes, people get confused between minor crypto pairs and exotic crypto pairs. But these terms are different. Exotic crypto pairs are lesser-known or new-launched cryptocurrencies. These pairs include one lesser traded pair either in base or quote.

They often come with low liquidity and very high volatility. However, these are good for those traders who want to explore something new in the crypto market and do not have much fear of losing money. An example of an exotic pair is NEO/Stellar.

Factors Influencing Cryptocurrency Pair Prices

The crypto market is dynamic.  The price of cryptocurrencies goes up and down from time to time. Now, let us see what really affects cryptocurrency prices.

Market Sentiment: News on rules, alliances, or technology improvements can greatly affect trader attitudes and cause prices to rise or fall.

Trading Volume And Liquidity: While small and exotic pairings tend to be more volatile owing to less liquidity, high trading volume and liquidity in big pairs contribute to more stable pricing.

Correlation with Fiat Currencies:  The movement of fiat currencies like USD or EUR, which varies depending on world economic events, influences some pairs.

Tips for Trading Cryptocurrency Pairs

Trading bitcoin demands both strategy and meticulous preparation. Here are key tips to get success:

Research Thoroughly: Investigate the market circumstances and the particular cryptocurrencies in the pair carefully before trading. Knowing their basics can guide them to make good judgments.

Use Technical Analysis: Technical analysis may help you find possible points of entrance and exit by use of charts, indicators, and trend lines. Tools like TradingView let one perform a technical study on crypto pairings.

Risk Management: Set stop-loss orders always to reduce losses if the market turns against your trade. Diverse trading by investing in several pairs helps to lower risk as well.

A Final Verdict

The foundation of crypto trading is pairs of cryptocurrencies, which let investors gamble on the price swings of digital assets against one another. Understanding the dynamics of pairs, the kinds of pairs that are accessible, and the elements influencing their pricing helps traders improve their strategies and make smarter selections. Learning the subtleties of cryptocurrency pairings is essential for excelling in the fast-paced world of crypto trading, regardless of your level of expertise with trading.