Understanding Crypto Trading Pairs
One of the most important concepts to understand when trading cryptocurrency is the notion of trading pairs. A trading pair is two or more cryptocurrencies being traded against each other, such as BTC/USDT (bitcoin and Tether USD), ETH/BTC (ether and bitcoin), or NEO/USDT.
Each pair has its unique price, meaning that if you want to buy an asset with a certain trading pair, you will have to pay a certain price per unit of that pair.
If you’re new to crypto trading, a “pair” is simply the crypto asset that you use as your trade unit. A “pair” of your crypto trading asset and fiat currency is also called a “currency pair.” In the crypto world, it’s common to refer to a pair as “XBT/USD” or BTC/USD—it’s the same thing.
You’ll probably see it referred to in many places as simply an XBT/USD or a BTC/USD, but if you’re looking for some help parsing out what that means, keep reading.
What Is The Purpose of a Crypto Trading Pair?
Crypto trading pairs are a part of the cryptocurrency trading system. These pairs are created by exchanges and allow you to trade one cryptocurrency for another or fiat currencies like US dollars or Euros. For example, if you want to trade your Bitcoin (BTC) directly for Ethereum (ETH), you need an exchange that offers a BTC/ETH pair.
If you want to exchange XRP for USDT, you could buy XRP and then sell it for USDT. In this case, the XRP/USTD pair is the intermediary currency.
Crypto trading pairs are generally more useful than direct crypto-fiat pairs because they eliminate the need for a third currency. This means that in the example above, if ETH/USD existed, but ETH/BTC didn’t, you would have to first buy BTC from your bank account with USD, then transfer that BTC onto an exchange that offered BTC/ETH pair and finally convert your BTC back into USD on another platform.
This extra step can be avoided by using a crypto-crypto pair, which is why some believe crypto trading pairs are good for the mass adoption of cryptocurrencies: it makes the whole process of buying and selling cryptocurrencies easier.
How Crypto Trading Pairs Work?
The first thing to understand is that “pair” refers to the relationship between two different cryptocurrencies. For example, Ethereum (ETH) is paired with another currency called tether (USDT).
The pair ETH/USD represents the value of 1 ETH in terms of USD; the price of 1 ETH in dollars. This is known as its value in fiat currency (USD). Similarly, BTC/USD represents the value of 1 BTC in terms of USD or its fiat currency value.
Crypto trading pairs are used for buying and selling cryptocurrencies in exchange for fiat currencies. A crypto trading pair usually has a BTC/USDT pairing as well; USDT stands for Tether, a cryptocurrency that’s supposed to be pegged to the value of the US dollar.
The price of cryptocurrencies can fluctuate dramatically daily, so it’s important to look at those prices in terms of each other rather than just their fiat counterparts. For example, the price of Bitcoin could change by 5% in one day, which would be considered normal volatility.
How To Read Crypto Trading Pairs
Cryptocurrency trading pairs can be daunting and difficult to understand, especially since they are often presented in a format that could be more user-friendly. The first step in understanding trading pairs is to keep the units in mind. When it comes to investing, the most basic thing you need to know is how to convert between each unit of measurement.
Let’s start at the pretty basic stuff: when someone is talking about cryptocurrency trading pairs, they’re talking about how many units of one currency can be traded for another. A trading pair of BTC/USD means that one unit of Bitcoin (BTC) could be traded for one US dollar (USD). You can see how this works with the chart below:
Now, that’s only half of the picture. With a trading pair such as BTC/USD, you’re getting a contract for difference (CFD). That means if you trade one BTC for USD 5,000, that $5,000 will be subtracted from your account. However, if the price of Bitcoin goes up by $5,000 over that period, you’ll receive an additional $5,000 in your account, making your total amount $10,000 instead of $5,000.
Trading Crypto Pairs with Stablecoins
There are some extra considerations when trading cryptocurrencies with stablecoins. Crypto trading pairs are grouped by matching the price of one crypto to another. For example, you can think of a pairing like BTC/USD, where the price of Bitcoin is paired with the price of USD.
When we’re talking about stablecoins, the way that a crypto-fiat pairing works is that there’s a fiat equivalent for each coin. In this case, it would be $1 stablecoin = 1 USD.
Stablecoins are cryptocurrencies pegged to a stable asset, like the USD or gold. One example of stablecoin is Tether (USDT), pegged to the USD at a rate of 1 USDT = 1 USD. Other stablecoins are not pegged to USD but to other currencies or commodities like gold.SWEAT/USDT is the pairing of SWEAT with USDT (Tether). USDT is a stablecoin, so when it is added to a pairing, it indicates that something can be purchased in USD.