In cryptocurrency trading you have quite a few different options when it comes to pairs.
There are hundreds of coins you can trade, but there are also hundreds of different pairings of these coins. It can quickly get confusing when you see all this information on your trading platform.
We are going to take a look at the pairings offered by brokers and see which are the best for you to trade.
There are three types of cryptocurrency pairs in the tradable market:
Crypto/Fiat (E.g. BTC/USD)
Crypto/Crypto (E.g. BTC/ETH)
Crypto/Stablecoin (E.g. BTC/USDT)
Let’s clear up any confusion you may have with crypto pairs!
This is currently the most traded type of cryptocurrency pair. If you didn’t know already, fiat currency is traditional currency. Currencies like the U.S. dollar and Euro.
It is what you will see most brokers offer on their trading platforms, largely paired with the biggest cryptos and fiat currencies (check some out here!). Some of the most common pairs include:
BTC/USD, ETH/USD, LTC/USD, BTC/EUR, BTC/GBP
USD is the standard for crypto-fiat pairings – almost all brokers will offer this. EUR and GBP pairings are becoming more common with time though.
Existing brokers that are involved in other tradeable markets, like forex or futures, have almost exclusively taken on crypto/fiat pairs, often as their only crypto options.
This reduces their risk of entering the crypto market as well as keeping to the regulations that they follow. Safe trading is important when it comes to the crypto market – remember to look for the regulations that brokerages follow.
BTC/USD is the most commonly traded crypto pairing which gives it an advantage over other pairs. The trading volume of BTC/USD is the highest which also means that the trading costs are going to be lower.
You will also have more movement since there are more orders being filled. In the early days of crypto trading this is vital – especially if you want to trade on high and low time frames!
Not commonly found with the traditional brokers, crypto/crypto trading pairs offer an even fresher dynamic to crypto trading.
Cryptocurrency exchanges offer a large range of crypto/crypto pairings – some lists are hundreds of pairs long.
Some of the most common examples are: BTC/ETH, BTC/LTC, LTC/ETH.
These pairings are tradable but they come at a cost. You will largely find these pairs on crypto specific brokerages which will use different fee structures.
The more you personally trade in a month, the cheaper it will be to trade. That sounds great, but it can also encourage over trading which is a trap a lot of new traders fall into.
Crypto/Crypto trading pairs are also trickier to trade. You can find success with them, but you will need to familiarise yourself with certain pairs.
Due to the crypto market being so young there are many uncertainties with regulation and even the future of certain coins. Add in the difficulties of news and crypto/crypto pairs can become hard to navigate.
Don’t worry though – if you put the time and effort into these pairings you will find success.
Just make sure you understand a pair before you invest your money into trading it. That goes for anything you trade!
These are perhaps the most confusing pairs that you will have seen.
You may not even have realized that you saw them.
Stablecoins are cryptocurrency that are linked to a fiat currency. This means that their value is the exact same – most of the time.
An example of a stablecoin is Tether (USDT). There are many others but a lot of you will have heard of Tether.
Tether is tied to the U.S. Dollar which means that 1 Tether is worth 1 USD. That’s why the ISO code for Tether is USDT.
Why bother creating a currency that is the same value as a fiat currency?
Well, there are a few reasons.
The first relates to the overall volatility of the crypto market. If you have any amount of cryptocurrency you could see the worth of your holdings plummet in the face of bad news or a volatile market.
Let’s say you have 10 bitcoins that in total are worth $70,000. You can see that the market is volatile and you don’t want to lose any of the value you have obtained.
So, you put all of your bitcoin into tether! Since Tether is stable and is always going to be worth 1$ USD, you will retain that $70,000 value.
This offers a safe method to maintain and store your wealth.
Another reason why stablecoins are used is because in enabling you to maintain your position, you can re-enter the market when it best suits you.
Since stablecoins are a cryptocurrency, you can buy them on the exchange.
That means your wealth is still on the exchange, allowing you to buy any cryptocurrency quickly and easily. This allows you to take advantages of dips and peaks in price!
Stablecoins enable traders to trade the market from a safer position and offer a faster method to execute trades.
Now, the issue with stablecoins is who is behind them and what regulation they fall under.
The short answer to this is that there aren’t really any regulations which puts stablecoins in an extremely grey area.
There is another issue with stablecoins that you might be aware of.
1 USDT is equal to 1 USD. What happens if that value is not 1:1? The stablecoin all of a sudden has lost its one purpose.
This has happened in the past – check out a chart for Tether and you will see it has dipped below the value of 1 USD.
All this uncertainty leads to more risk with your trading.
Added risk in the crypto market is not desirable, but it is important to remember that we are in a wild west of sorts when it comes to the cryptocurrency market.
Regulations and safer methods will come to the forefront of the crypto market. It takes time for these things to fall into place because there are no industry standards yet.
We are risk averse traders at Cryptos4noobs, so we prefer to trade the Crypto/Fiat pairs because they are often regulated and we are confident trading them.
So when it comes to the crypto pairs on offer you have three choices.
All of them are viable but some are certainly safer than others for the time being.
Now that you understand the options in front of you, you can make the best decision for yourself. Good luck trading!