Cryptocurrency Trading Pairs Explained - How to Choose the Right One

Navigating the world of cryptocurrencies can be a challenging experience for new investors. There’s a lot of material to learn in order to be able to begin trading these volatile investment vehicles in regards to exchanging and even storing them safely.

One of your first concerns will likely involve trading pairs. Even if you’ve invested in other assets before such as stocks, you may be unfamiliar with this since those securities were likely traded against your local government issued currency.

Cryptocurrencies do not trade against fiat pairings in most cases, though there are some options popping up for this now, instead, you will be trading against the value of another cryptocurrency. These pairings help to establish the value of your coins. Typically an exchange will have multiple pairings available, and you’ll be able to choose which ones you want to use based on the currencies that you already own.

Bitcoin is by far the largest trading pair, as most coins tend to have the bulk of their volume situated here. However, some other common ones include Ethereum or Litecoin. Even Dogecoin can sometimes have a place as a trading pair, and it is often utilized for low market cap coins where it might be burdensome to trade them with something like Bitcoin. Some investors also favor Doge for this because its value tends to be quite stable, making it a good place to retain value.

A pairing essentially establishes a baseline on which you are trading other coins or tokens. In order to trade in one of these markets, you will need to own the base currency in order to purchase new currencies in that market. When you see a nice little green blip noting a gain on the chart for a Bitcoin pairing, this is how much your purchased asset has increased in value against Bitcoin’s price.

If you’ve ever seen where any investment was worth more the next day, but it did not seem to show a gain, it’s likely because both Bitcoin and the asset in question rose against the USD, increasing their value without really showing it.

How do you choose a trading pair?

When choosing a pair, it’s important to evaluate all of the factors involved in your potential trade. However, the first step is, of course, checking to make sure that the exchange that you want to trade on will allow you to use that specific base currency, as they all have specific options available.

You can easily find this out by visiting the exchange in question and then viewing their market listings. When selecting an asset, you should see something that will denote the other currency that makes up the equation. If we were trading Bitcoin Cash for example, and the coupled currency was Bitcoin, then it would likely be displayed as BCH/BTC to denote the pair.

The number of pairs that your exchange provides will vary greatly with the platform, but most of them will have at least three of the more popular options. Typically they will allow all of their assets to trade for every one of these markets.

While some cryptocurrency exchanges do allow you to make your initial cryptocurrency purchase with fiat currencies, many of them do not. That means you may have to utilize something like CoinBase to make your initial purchase of a base currency, and then you’ll use that to buy an altcoin such as Neo or EOS. That means it’ll be important to identify that correct base currency that you’ll need before proceeding.

How does liquidity effect pairings?

When choosing a base currency it’s important to evaluate the liquidity that is available for that market. While it may sound like a great idea to trade Litecoin for your new assets instead of Bitcoin, due to lower transaction fees and quicker settlements, you should keep in mind that you could end up overpaying for your purchases this way.

Often times these secondary markets will have much less activity than the main pair does. The market will typically react to this by upping the pricing since there are not as many assets to go around in this market as there would be for a more popular pairing. If you’re not careful, you could end up paying a good deal over the real market price by utilizing an alternative base coin. This could quickly eat up any of the savings you may have gained in fees.

Remember to check other exchanges through before giving up hope on trading with your chosen pairing. Just because one exchange has an order book that’s on the light side that doesn’t mean that all of them will. You can usually utilize a cryptocurrency market aggregator tool to quickly see not only which pairings are available for the coin or token you want to buy, but also the exchanges that offer them and their trading volumes.

This will allow you to quickly identify where and how to make your trades quickly and for an attractive price. This is particularly useful if you plan to trade for a more obscure asset with a lower trading volume.

Is there any reason to choose one pairing over another?

Choosing a certain currency to trade against is partly personal preference. However, you could gain a couple other advantages. As we discussed in the previous section, the prices for one market could be quite different than those in other markets.

If you were wanting to sell a particular asset for a certain altcoin, it’s possible you could squeeze out some more profit if you were willing to wait for a trade. Others may simply wish to try to scoop profits out of another market that holds less competition.

Many ultimately choose other cryptocurrencies as pairs for lower fees and speedier transactions though. Whether or not you choose to utilize any alternate base currencies is up to you, and you’ll need to weight the benefits to decide whether or not they make sense in your situation.

What are the most popular base currencies?

While base currencies can vary quite a bit, there are a few tried and true ones that always seem to be around for you to utilize. They tend to have their own advantages or disadvantages, and it will be up to you to decide which one is the best for your particular situation. If you end up with the wrong one, most exchanges will allow you to swap major currencies anyway to put yourself into a better buying position.

Bitcoin

By far the most popular pairing and almost every asset can be exchanged for this currency. The only problem with using Bitcoin is that the fees can be high, and the transactions can be annoyingly slow if you’re trying to move some money around quickly.

However, if you want the most versatile base currency, then this is your best bet. Be aware that when withdrawing, exchanges will likely charge the highest fees for this coin.

Ethereum

Likely the second most popular base trading pair, Ethereum is also very versatile. For the few tokens which are not tradable for Bitcoin, they are typically exchangeable for ETH. This is due to the fact that most of these are ERC20 tokens which are built on the Ethereum chain.

This currency suffers from a similar problem to Bitcoin though, and if the network is getting congested from things like collecting digital kitties or farming Ether shrimp, then the fees and transaction times can become quite painful.

Litecoin

Litecoin is another very popular pairing, and most exchanges support it. This pairing benefits from having much faster transaction times than the previous entries, and they also offer much lower fees.

Unfortunately for Litecoin, the pairings are almost always in favor of big brother Bitcoin, and that means it can be challenging to trade with LTC without overpaying for your assets. If you want to utilize Litecoin, then you may need some patience to get a good deal.

Dogecoin

Dogecoin will be unusual to you if you don’t use any exchanges that trade low-value coins. However, it’s a solid pairing, and it’s actually very popular on exchanges like Cryptopia that list a huge number of coins in the low-value range.

Using Bitcoin to trade for such low-value assets can be burdensome, and Dogecoin fits the bill nicely. This coin also seems to hold a pretty stable value, and that makes it a favorite for trading.

USDT

While this currency tends to get some flack from enthusiasts, it is the most popular trading pair in its class, regardless of your stance on its management. This is actually a USD pegged cryptocurrency meant to always retain a peg that will equate it to 1 USD worth for each of these tokens.

This makes them not only valuable as a trading pair but also as a place for investors to stash away some money they don’t want subject to the cryptocurrency roller coaster but still available should a good buy spring up.