Trading on the crypto market is becoming more complex by the day, as the ecosystem evolves. Users must monitor indicators for prices, trends, and volumes, while also being aware of market movements. Unfortunately, most individuals lack the patience to conduct thorough research on assets and strategies when learning how to crypto and manage their holdings, exposing them to the risks of volatility.
If these factors aren’t enough, another important component in trading emerges: crypto pairs. These combos can vary and have the power to influence trends, which is why experienced traders monitor them. The most common pair is ETH/BTC, which combines the two leading cryptocurrencies. Their dominance can signify the start of an altcoin season or a Bitcoin season.
However, there are many other types of crypto pairs, and they’re usually underrated, so let’s explore more about them.
What do trading pairs mean?
Trading pairs gather two cryptocurrencies that users trade against each other. The first asset in the pair is known as the base currency, which traders buy or sell, while the second is the quote asset, or the one being exchanged. For example, in the ETH/BTC pair, trading refers to either purchasing ETH with BTC or selling ETH for BTC.
Trading pairs are essential factors in reading the market, as they can offer valuable information on:
- Price determination, by showing the relative value of a coin;
- Liquidity and market depth, depending on the coins the pair includes;
- Access to new markets by pairing local currencies with base coins;
- Arbitrage opportunities are created by comparing the prices of trading pairs on different exchanges;
- Diversification, through trading pairs to minimize the losses of one of the coins;
What are crypto-to-crypto pairs?
Crypto-to-crypto pairs include only cryptocurrencies, and they’re perfect for trading altcoins. Some traders prefer them as not all platforms support fiat currencies, as they’re only focused on decentralized assets. Popular pairings include Bitcoin as the base, and other altcoins as the quote, such as BTC/ETH, BTC/DOGE, or BTC/ADA.
The second most popular pairing includes Ethereum as the base currency, paired with all other altcoins. Finally, users can also pair stablecoins with altcoins, such as USDT/BTC or USDT/ETH. Each of these trading pairs offers valuable insight into the volatility, safety, and profitability of an asset compared to another.
What are crypto-to-fiat pairs?
Crypto-to-fiat pairs are crucial for traders, as they bridge the gap between traditional finance and decentralized assets. These duos include popular choices like BTC/USD or ETH/EUR, but they can also include lesser-known options, such as USDT/PHP or BTC/NGN.
Traders use these pairs to benefit from:
- Accessing cash from cryptocurrency holdings, so loads of liquidity;
- Taking advantage of price movements, while using fiat currencies as intermediaries;
- Entering and exiting the market by exchanging and converting the assets accordingly;
- Managing volatility in bearish markets by converting crypto to fiat;
How can users trade pairs?
Starting with trading pairs is quite straightforward, but users should research them well before diving into the pair trading sector. Ideally, each pair should offer stable trading conditions, present high trading volumes, and have excellent price execution. This is the case of established pairs like BTC/USDT, as they’re easier to analyze and have higher liquidity.
Then, users will set up a pair trading account and stick to a trading style that suits their risk levels. Hands-on investors should practice active trading, while busy investors can approach automated trading. At the same time, making the first trade requires a strategy that starts small and closely monitors the trading positions.
How should trading pairs be analyzed?
Making informed trading decisions requires investment in time spent analyzing trading pairs and understanding the factors that affect their prices. For instance, reading price charts provides insight into market sentiment, as well as the opening and closing prices.
It’s also important to analyze trading pairs by trading volume, which indicates the condition of the price movements. Here’s what to know about volume types:
- Rising volumes signal a trend confirmation, so there’s support in the current direction;
- Falling volumes show a trend weakness, which may be the case for a potential reversal ahead;
- A spike in volume is equal to a strong movement, so it’s best to watch out for a breakout or breakdown;
There are also three market trends to be wary of:
- The bull market is known as an uptrend as it includes increasing volumes and higher highs;
- The bear market, or the downtrend, has lower lows and comes with an elevated selling volume;
- The consolidation, or sideways trend, means the volumes will decrease and prices will move within a defined range;
How can users manage trading risks?
Crypto trading pairs are essential features of the industry and have the potential to bring about significant change worldwide. As Yi He said, co-founder at Binance.com, “Crypto isn’t just the future of finance – it’s already reshaping the system, one day at a time.” However, crypto can be risky if not handled carefully.
Therefore, traders should learn how to manage these challenges by:
- Setting stop-loss orders that execute the trades as soon as the price of an asset reaches a predetermined level;
- Assessing the risk during high volatility periods and reviewing risk management strategies often;
How to build a trading strategy
Users can design personalized trading strategies based on their goals, time commitment, and risk tolerance. Therefore, there are short-term approaches, such as day trading and swing trading, which are suitable for active or part-time traders.
On the other hand, those who are patient enough to wait for their assets to gain value or want to invest for the long term can try position trading and HODLing (holding on for dear life), which can take several years to build the value they want in their portfolios.
Final considerations
Crypto trading pairs can include both cryptocurrencies and fiat money. The base coin leads the market, while the quote asset tends to follow. Analyzing these pairs can offer traders significant insights into market conditions, as well as potential shifts towards an altcoin or BTC season. Trading these pairs should involve close research and market monitoring, especially in the case of less popular coins or fiat currencies.
