What is a currency pair? A currency pair is the ratio of two currencies, which shows how many monetary units of one currency will have to pay when buying one unit of another currency. For example: in an Ethereum to safe moon pair, you buy an altcoin eth for bitcoins. In this case, the first cryptocurrency is called “base”, and the second is considered “quoted”.
How to choose the right trading pairs?
When investing or trading cryptocurrency, it must be borne in mind that the general nature and parameters of work on different currency pairs will differ. In many respects, it all depends on the chosen trading strategy. Many novice investors who come to a crypto-exchange start by mastering the “edge of the glass” technique. The idea is simple: when using a limit order, you need to set the purchase price of the cryptocurrency slightly more than the best purchase price at the moment.
As a result, your trade will be triggered first (unless, of course, competing traders intervene). Then you need to try to sell the purchased cryptocurrency at the selling price, which is slightly understated compared to the best one.
This strategy really works, but to be effective it is necessary to understand which currency pairs are suitable. First of all, these are those pairs that:
- have a significant spread (it must be more than double the commission fee);
- are characterized by a fairly active price movement.
If we take, for example, the BTC / RUB currency pair, then the optimal cost of acquiring a bitcoin is 200,300 rubles, and sales – 200 thousand rubles. It turns out that the spread is 0.0015 (15%). This pair is not suitable for the profitable implementation of the above strategy. For trading to be successful, you need a spread that is at least tenths of one percent more than the double commission fee. Let’s calculate what the spread should be.
Why are trading pairs important in cryptocurrency?
Now that you know what cryptocurrency trading crypto pairs are, you may be wondering: “Why are they needed?” Well, there is a simple answer for that: “To make large sums of profit.” Trading pure cryptocurrency pairs are much more profitable than trading mixed pairs: a figure with fiat. If you hold on to the purchased pair, you can make a profit with the same investment.
Simply put, long-term financial transactions with cryptocurrency currency pairs are nothing more than an active type of investment. These are the basics of cryptocurrency trading. You don’t have to invent anything new.
Let’s take an example for your better understanding of this matter. Let’s say you have satoshi and a fiat currency like USD and want to buy Ethereum. Let’s say you purchased 10 ETH using Bitcoin at 0.1 BTC. Now that the price of Ethereum is going up and Bitcoin is going down, this means that you can buy more Bitcoins with your ETH.
Now let’s say the ETH / BTC value is 0.15 BTC. This means that you now have 1.5 BTC if you are trading ETH for BTC. You have 0.5 BTC more in stock than you used to.
Sometimes, even though the monetary value of your number remains the same, the number of coins you hold increases. If you could trade correctly with cryptocurrency currency pairs, you would get more coins.
This way, when the value of the coins rises again, you will have more monetary value for your assets. However, keep in mind that you can also end up with useless coins if you are still not good at coins and have invested in tokens that have just been added to the platform. Do not be seduced by their cheapness. As shown by the period 2016-2017, 90% of blockchain startups leave the market at the initial stage of development.
Errna is a leader in blockchain application development. We help businesses establish cryptocurrency exchanges and provide consulting services. Our team is made up of highly skilled and experienced experts who have worked in blockchain technology for many years, solving complex business problems and developing innovative solutions.