Crypto trading pairs are essential for trading on crypto exchanges like Coinbase, Binance and KuCoin. They allow users to trade one cryptocurrency for another without exchanging either for fiat currency first.
Bitcoin (BTC), the leading crypto by market cap, and tether (USDT), which is the largest stablecoin pegged to the U.S. dollar, are frequently traded crypto pairs. You would see the pair noted as BTC/USDT or BTC-USDT depending on the exchange.
What is the purpose of crypto trading pairs?
A cryptocurrency pair allows each asset in the pair to be valued without using fiat money. Cryptocurrency trading pairs are a necessary part of the crypto economy and liquidity.
Let’s take a real-world example of trading pairs that many travelers encounter. Let’s say an American traveler was going to France on May 12, 2022. The traveler would research the exchange rate of the euro against the U.S. dollar to help budget the trip and understand the cost of things in France. The foreign exchange rate of the trading pair of EUR/USD on May 12, 2022, would have been about US$1.04 for 1 euro. So to get 1 euro, it would take $1.04.
As so with foreign exchange (forex), crypto platforms provide a variety of trading pairs as well so that their users can easily exchange one crypto for another. Crypto exchanges have responded to the huge demand for supporting as many pairs of cryptocurrencies as possible.
Another reason to use trading pairs is to decrease trading fees. If the trading pair did not exist, you would need to use at least two crypto trading pairs to obtain your desired cryptocurrency – and pay additional trading fees, as you would be committing to two trades as opposed to only one.
Here’s an example: A trader is looking to exchange dogecoin (DOGE) for Shiba inu coins (SHIB) and looks for the DOGE/SHIBA pair on a decentralized exchange (DEX). However, the DEX did not provide this trading pair.
You can see how much simpler it would be to find and use a SHIB/DOGE pair instead.
To connect it back to our example of global travel, a traveler going from the U.S. to France and then to England would not need to exchange euros back for U.S. dollars because the traveler can utilize the EUR/GBP trading pair to save on fees.
Read more: How to Get Started Investing in Crypto on Popular Exchanges
How to read crypto trading pairs
Reading a crypto trading pair is easy because there are only two parts: the base currency and the quote currency.
Cryptocurrency trading pairs are often represented with a set of three letters with a backslash such as AAA/BBB.
The base currency is always the first cryptocurrency in a crypto trading pair. The base currency is the base to which the other currency is compared – if we look at our EUR/USD example from earlier, euro (EUR) is the base currency. For BTC/USDT, BTC is the base currency. The ticker before the “/” is always the base currency in crypto. Another example is ETH/BTC, in which ETH is the base currency.
The second part is the quote currency. It is the price of the base currency quoted using the quote currency. The quote currency comes after the “/”. For the trading pair of BTC/USDT, USDT is the quote currency. If we refer back to the EUR/USD example, the U.S. dollar (USD) is the quote currency.
The pairs work together to tell you how much of the quote currency is needed to equal 1 whole unit of the base currency.
From a real-world perspective, ETH/BTC was trading around 0.0695 on May 12, 2022. In other words, a trader would receive 1 ether for about 0.0695 bitcoin as bitcoin is the quote currency for ether.
Trading crypto pairs with stablecoins
The most used and liquid trading pairs usually involve fiat-backed stablecoins such as tether (USDT), USD coin (USDC) and Binance USD (BUSD). This is also the reason these stablecoins have a high market capitalization.
Here are some popular examples of crypto pairs associated with stablecoins:
From an investor’s point of view, using stablecoins makes it easier to calculate the value in fiat currency as the top-three stablecoins by market capitalization are pegged to the U.S. dollar. There is also an abundance of stablecoin pairs available on exchanges, giving traders easy access to buy more cryptocurrencies.
Read more: Centralized Exchange (CEX) vs. Decentralized Exchange (DEX): What’s the Difference?