What is a Trading Pair
A trading pair is a pair of cryptocurrencies that can be exchanged directly on a crypto exchange. It determines the relative value of one asset against another. For example, BTC/USDT shows how much Tether (USDT) is needed to buy 1 Bitcoin (BTC).
Is Any Cryptocurrency Pair a Trading Pair?
Not always. In some cases, there may not be a trading pair to swap two assets for one another directly. To execute the trade, a common intermediary coin that's paired with both of the selected assets will be used. Most commonly, it's Tether, Bitcoin or Ethereum. This process can introduce extra costs, including trading fees and price slippage.
Are Trading Pairs Limited to Crypto?
Not at all! Trading pairs on crypto exchanges can include fiat currencies like the U.S. Dollar or Euro. Examples include BTC/USD or ETH/EUR.
Why Trading Pairs Matter
For anyone trading crypto, pairs are essential to avoid unnecessary conversion fees and reduce slippage.
Trading two assets that do not make up a trading pair is possible (for example, on decentralized exchanges), but technically it executes two trades using two existing trading pairs, swapping into a common intermediary coin before the trader can receive the desired asset. This also incurs higher fees and may affect the price at which the trade is executed.
Trading pairs are fundamental to the operations of cryptocurrency exchanges, both centralized and decentralized, as they facilitate the trading process. The liquidity and volatility of different pairs can vary significantly, influencing trading strategies and investment decisions.
A more popular trading pair will have a tighter bid-ask spread, higher liquidity and trading volume. A wide variety of trading pairs on an exchange opens an opportunity for triangular arbitrage.
Base Currency vs. Quote Currency
A trading pair consists of two assets: the base currency and the quote currency. The base currency is the asset being bought or sold, while the quote currency is the asset used to make the trade.
In a trading pair such as BTC/USDT, BTC is the base currency, and USDT is the quote currency. The base currency is always indicated before the "/", while the quote currency goes after "/", respectively.
The price of the pair is indicated in the quote currency and tells traders how much of the quote currency is required to buy 1 unit of the base currency. If 1 bitcoin can be bought for 100,000 USDT, the price next to the BTC/USDT pair would be displayed as 100,000 USDT, and not the other way around.
What are the Best Trading Pairs for Beginners?
Pairs with high liquidity and tight bid-ask spreads are recommended for beginner traders to avoid potential mistakes or price slippage. Usually, they are also the most traded pairs. Some exchanges, such as Binance, offer discounted or even zero fees on pairs like BTC/USDT.
How Do Trading Pairs Relate to Arbitrage?
Understanding trading pairs is crucial for advanced strategies like arbitrage. Arbitrage involves capitalizing on price discrepancies of the same asset across different exchanges or trading pairs, often using sophisticated algorithms and trading bots.
Bottom Line: What is a Trading Pair
A trading pair is a pair of two assets that can be traded against each other, and its price represents the relative value of one cryptocurrency against another. Trading pairs are essential for navigating the crypto market, allowing traders to swap assets efficiently. Understanding them helps minimize fees and improve trade execution. Beginner crypto traders should start with popular pairs like BTC/USDT or ETH/USD for better liquidity and lower costs.
