A pair in cryptocurrency trading are two assets that can be exchanged for each other, allowing users to compare spot prices between different cryptocurrencies. A trader will always consider a pair before changing one coin for another, making profits, or taking advantage of arbitrage opportunities.
A cryptocurrency pair like the BTC/USDT comprises the base currency, in this example, Bitcoin, and the quote currency, the USDT. Each coin often possesses various properties depending on liquidity, among other factors. A base currency in cryptocurrency trading is primarily the most liquid of the two. At the same time, the quote can be the altcoin with lower liquidity or a fiat currency like the USD, GBP, JPY, and more.
There are over 11,000 digital assets in crypto, and the number keeps rising as more smart contracting networks are launched. Therefore, understanding different cryptocurrency pairs and their properties are essential for traders. It is important to appreciate that not all cryptocurrencies are viable. Some are the handiwork of tricksters keen to pump and dump baseless assets. When selecting lesser-known assets for trading pairs, do proper research to avoid falling for the trick.
Why Do We Need Crypto Pairs?
Some cryptocurrencies can be exchanged directly from a listing exchange for another or fiat. However, few are available in liquid cryptocurrency exchanges like Binance or Coinbase, subject to the crypto project meeting stringent criteria depending on jurisdictional laws.
Overall, a pair will compare the value of one digital asset to another. If the quote currency is in fiat, then the pair indicates the relative value of the base currency’s worth in fiat terms. With this provision, a trader can initiate positions to swap one asset for another. At the same time, a crypto pair gives an allowance for traders to acquire liquid or essential assets. Through the BNB/USDT pair, for instance, a user can swap USDT for BNB and participate in DeFi.
Pairs allow traders to compare the costs of different cryptocurrencies. Traders can know the relative worth of a cryptocurrency and how useful it is for their trading. Stablecoins are vital in trading pairs because they are useful for risk management. These assets have their value pegged on relatively stable fiat currencies like the USD. Stablecoins have a backup in the form of cash in bank accounts or other stable assets to sustain the digital asset’s value.
Popular Trading Pairs
A crypto pair’s popularity depends on their respective level of liquidity, measured using market cap. In crypto, the most popular pairs are BTC/USDT, ETHUSDT, BNBUSDT, ADAUSDT, and all top-20 crypto assets paired with each other, stablecoins, or fiat currencies.
In trading, the higher the pair’s liquidity, the faster it is to settle and the lower the slippage. It is no coincidence that stablecoins like USDT feature prominently among trading pairs. They help manage risk in trading, explaining why traders acquire them.
Understanding trading pair is vital to successful trading. Appreciating the risks, volatility, and potential upside of assets that make a trading market is fundamental to navigating cryptocurrency markets.