Cryptocurrency Trading Pairs: What Are They And how Can You Trade Them?

By Rubikkav | Rubikkav Insights | 4 Nov 2020


 

For a successful trader, one of the biggest questions is “what next”. When a portfolio is turning in a pretty profit already, it can be hard to know if you should stick or twist. After all, you know your markets inside out now — be they forex, commodities or stock indices. But it doesn’t mean you shouldn’t look to diversify and try your hand at trading something a little less conventional.

In the grand scheme of things, cryptocurrency is a relatively new phenomenon. But it’s gaining significant traction in the trading world. And adding cryptocurrency pairs to a portfolio offers an immense amount of potential to push your returns to even greater heights. Such pairs bring all the features to attract any risk-averse investor — so why not start trading cryptocurrency pairs?

What exactly is a cryptocurrency pair?

First, it’s essential to know what you’re getting into as your capital is at stake. And that means getting to grips with what a cryptocurrency pair actually is. But it’s quite simple.

Much like how investors can trade currency pairs on the global forex market, including EUR/USD and USD/GBP, so too can cryptocurrency pairs. Instead of trading cash for crypto, you trade one for another. And much like major fiat currencies such as the US Dollar and Euro are used as base currencies in forex, Bitcoin is often seen in most crypto pairs.

But Bitcoin isn’t the only cryptocurrency you can trade as part of a pair. How a cryptocurrency pairs works for interested investor is that one cryptocurrency’s cost is measured against the other. From this, you can establish its value.

How do you trade cryptocurrency pairs?

One major reason that Bitcoin is much more prevalent in cryptocurrency trading pairs is due to its relative success. Its value recently sky-rocketed after PayPal confirmed it would be accepted as a payment method. Some of the top cryptocurrency pairs involve trading Bitcoin and USDT — a stablecoin that mirrors the price of the US Dollar, plus Ethereum, Ripple XRP and Litecoin.

Each cryptocurrency has a unique value measured in US Dollars. One Bitcoin, for example, has reached a value of around $13,000 in recent times. By selling off half a Bitcoin worth as much as this, an exchange will then display how much of the alternative cryptocurrency you can buy. But it is worth noting that you cannot always make direct trades — even if the asset is listed.

The benefits of cryptocurrency pairs

With a number of cryptocurrencies to explore, trading crypto pairs can help an investor turn in attractive profits. The price on one market can be significantly different to that on another. It’s also possible that you can drive returns by pursuing a trade on a market with less competition. This is especially the case when many investors focus on more popular base currencies.

This choice also puts more power in the hands of you, the investor. If you trust your forex and commodity choices to earn a passive income from your trading activities, it gives you freedom to explore the investment options that crypto pairs can offer. With every crypto having its own profit-making potential, you can take the time to see which one best fits your trading needs.

What else do you need to think about?

Like any trading activity, the present risk must be factored in to any investment decision you take. Cryptocurrencies can be highly volatile and, while this means plenty of potential for that to work in your favour, it can also work against. You may also encounter certain tax liabilities — particularly in jurisdictions where crypto is seen as an asset class, rather than a currency.

As a means of diversifying a successful portfolio, however, crypto pairs come with all the core ingredients to be a smart choice. And, when executed right, the profit potential can be huge.

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Rubikkav
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