For traders who want to take advantage of the crypto market efficiently and safely, choosing pairs is an ideal way to better manage risk. That’s because they don’t necessarily require assessing price movements; rather, they focus on the relationship between the two assets. Expert traders use knowledge of correlation and cointegration, which are complex mathematical concepts that show how different digital assets move together.
However, for beginners or intermediaries, pairing cryptocurrencies with stablecoins, which are backed by fiat money, is the ideal strategy for preserving the portfolio. For example, starting with the BTC/USDT pair is efficient, since Bitcoin is a volatile yet considerably stable coin, whereas USDT is the leading stablecoin in the market.
But how difficult is it to understand trading in pairs? Let’s discuss the key takeaways.
What are cryptocurrency pairs?
A pair between two digital assets, whether they’re cryptocurrencies or stablecoins, allows users to trade them in the form of an exchange, so they can use one coin for another to profit from market movements. The first asset in the pair is known as the base currency, which is bought or sold. The second asset is the quote currency, which traders use to measure value.
For example, in the BTC/USDT pair, you use it to buy or sell 1 BTC, but you pay or receive USDT. This is one of the pairs that offer high liquidity and high-volume trading, providing considerable market stability and predictability.
Liquidity is important because it shows how easily you can buy or sell an asset, while trading volume provides insight into how active the pair is. Regardless of the trading strategy users choose — whether day trading or long-term holding (HODL) — they must thoroughly analyze price chart data, interpret trading volume, and identify market trends to adequately benefit from these pairs.
What are the benefits of pairing cryptocurrencies with stablecoins?
All cryptocurrencies are volatile, but to different degrees, depending on their market capitalization. Comparing Bitcoin with any meme coin, for example, proves the point, as they have distinct market values. However, stablecoins are superior in terms of stability and volatility, as they are pegged to fiat currencies (though they can also be algorithmic or backed by commodities). This means they have a 1:1 ratio, so 1 USDT equals 1 USD.
So, choosing stablecoins as the second asset in a pair can help traders navigate the risks of the first asset, thereby serving as a hedging tool. The stablecoin also usually has higher liquidity, so you can easily trade it for another cryptocurrency, thus reducing the risk exposure and stabilizing returns.
But there’s a catch: stablecoins minimize the effect of price fluctuations by nature, which might go against other pairs that need price fluctuations to be efficient. This is why traders need to do their homework and thoroughly understand how pairs work to make the most of their value.
How do you use cryptocurrency pairs?
The best trading pairs offer you stable trading conditions, high trading volumes, and better price execution. Established pairs like BTC/USDT or ETH/USDT are best for beginners since they are more predictable than others, and they’re easier to analyze than low-liquidity pairs.
So, you choose a trading pair based on your level of experience and goals, and set up a trading account on a reputable exchange. When it comes to the first trade, it’s best to adopt the trading style that suits you best. For example, active trading is perfect for hands-on investors who actively engage in how their investment portfolio grows, while automated trading is ideal for busy investors who prefer automation.
Other categories include part-time traders who can choose swing trading, which helps generate profit from short-term price movements, or patient investors who can take advantage of position trading, during which they hold a position in a security for a long period, ranging from months to years.
What are other examples of trading pairs?
If you want to try other types of trading pairs, know that there are endless combinations, but the most profitable include stablecoins and leading cryptocurrencies. For instance, you can pair USDT with Bitcoin, Ether, Dogecoin, and even Bitcoin Cash, but a less-popular pairing option is DAI, a crypto-collateralized stablecoin backed by Ether, Wrapped Ether, or even USD Coin.
Crypto trading pairs usually include Bitcoin or Ethereum as the base currency, so we’ve got these combinations:
- BTC/ETH;
- BTC/DOGE;
- BTC/ADA;
- ETH/BTC;
- ETH/BCH;
- ETH/LINK;
Finally, you can also opt for fiat currencies in crypto trading pairs, such as USD (the strongest and most common asset), and Bitcoin, Ether, MATIC (from Polygon), and ADA (from Cardano).
How can you interpret trading pairs?
An effective use of trading pairs is reading them correctly. Besides knowing which of the assets is the case of the quote, you must also master the price of the pair, which shows how many coins from the quote asset you need to buy one base coin. The volume and liquidity of the pair are also necessary in delivering a correct interpretation of the various market trends:
- The bull market, also known as an uptrend, is when prices reach the higher highs and higher lows, so traders forecast prices to continue rising for a while, which is best for buying;
- The bear market, also known as the downtrend, occurs when prices head to the lower highs and lower lows, making traders sell or avoid buying since the market is falling;
- The consolidation trend is when prices have little direction of movement, so as there’s a lot of indecisiveness, traders perform better in short-term trading;
What’s your take on crypto and stablecoin pairs?
Trading pairs of cryptocurrencies and stablecoins is ideal for beginners because this combination helps mitigate volatility risk. Choosing a crypto coin alongside a stablecoin provides ample liquidity, helping users gain more confidence and experience in moving between pairs of cryptocurrencies or between cryptocurrencies and fiat.