If you have visited crypto trading platforms, you will have seen trading pairs like ETH/USDT, ETH/BTC, BTC/USD, and many other similar options. However, do you know what these crypto trading pairs mean and how they are interpreted? Let's look at crypto trading pairs, how they work, and how you choose pairs to trade.

What Are Crypto Trading Pairs?

Crypto trading pairs consist of two assets that you can trade for each other on an exchange. A crypto pair combines a cryptocurrency with another cryptocurrency or fiat currency. Examples of crypto-to-crypto pairs are BTC/ETH, LTC/BTC, BTC/USDT, etc., while crypto-fiat combinations include ETH/USD, BTC/GBP, etc.

How Crypto Trading Pairs Work

A trading pair contains the ticker names of each crypto involved in the trade, often separated by a slash (/) or an en dash (-). The first set of letters represents the first asset in the pair, and the second set represents the second asset.

The letters are abbreviations of the names of the native tokens of crypto networks, just like we have them for fiat currencies, where the United States Dollar is represented as USD and the Swiss Franc as CHF. In this case, we have BTC for Bitcoin, XRP for Ripple, ADA for Cardano, etc.

The Base Currency and Quote Currency

A crypto trading pair is composed of a base currency and a quote currency; the base currency is the first in the pair with which the other currency is paired.

If you have LTC/USD, for example, the LTC is the base currency, while the USD is the quote currency. As the name suggests, the quote currency is the one in which the base currency is quoted. It always comes after the base currency.

How Buy and Sell Orders Are Interpreted in Crypto Pair Trading

The value of one currency is compared to another in a pair. A trading pair shows how much base currency is needed to buy one unit of the quote currency. Suppose BTC/ETH is $13.8; it means that 1 BTC is worth 13.8 ETH. Using another example, if ETH/USD trades at $1,319, you will need 1,319 USD to buy one ETH.

When you buy a pair, you are buying the base currency and selling the quote currency. On the other hand, when you enter a short position on a pair, you are selling the base currency and buying the quote currency. Trading cryptocurrency pairs involves the simultaneous buying of one currency and selling of another. Although you only have to make a single order, the buying and selling process is simultaneous and automatic.

So if you initiate a buy order on ETH/USD, you are investing in ETH against the USD. You are buying ETH and automatically selling USD because you believe ETH will rise in price against the USD. On the other hand, if you believe that the price of ETH will drop against the USD, you will have to go short. This way, you are selling the ETH and automatically investing in USD.

4 Factors to Consider When Choosing a Crypto Pair for Futures Trading

In choosing the crypto pair to trade, there are some things you need to consider.

1. Your Trading Strategy

A trading strategy might work for one pair but not for another. For example, a strategy that works for trading BTC/USD may not work for ADA/BTC.

a man trading on a PC

Before deciding on which crypto pair to risk your money on, you must have worked out the right technical and fundamental trading strategies that work for it. Getting the right strategy also requires you to either backtest it through a lot of market data to see how it works or paper trade for a while until you are confident about it.

2. The Pairs on Your Trusted Exchange

Sometimes, the pair to trade might be based on the ones provided by the exchange or broker you trust. As the security of your funds should always be a priority, the choice of trading pairs could be based on what the exchange you trust offers instead of depositing on an exchange you do not trust.

Some crypto pairs are more common on exchanges than others. For example, BTC/USD and ETH/USD are available on many exchanges and brokerage platforms. It is also more common to see pairs with USD and BTC as their quote currencies than some other cryptos.

3. Your Trading Goal

What do you want to achieve while trading? Do you want a pair that can give you more trade opportunities? If so, you may want a more volatile pair. The more volatile the pair you choose, the higher the risk you will be open to.

Highly volatile pairs will also provide you with more trade entries and potential profits. High volatility combined with proper risk management should give you good results.

On the other hand, if you prefer to trade in a slower market, whether due to your personality, trading style, or experience level, then pairs with lower volatility could be best for you.

4. Crypto Exchange and Asset Liquidity

Liquidity refers to the ease of trading a pair. Trading illiquid pairs can affect your overall profit as you might find it hard to execute and close trades at your desired price. This means you will experience major slippages when trying to execute trades.

Not being able to execute trades at your desired price is a major problem that could eventually lead to significant losses. We advise day traders to stay off illiquid assets or exchanges with low liquidity.

No Waiting for Bullish Moves to Make Profit

With crypto pairs, you can attempt to profit by taking a short position as the market price drops and a long position as it rises. You don't have to wait until the market has a long bull run to accumulate profit.

Trading crypto pairs aren't as simple and direct as you have read. Therefore, you must take your time to master different analysis types, trade management techniques, and risk management practices, among other skills, to stand a chance of excelling.

​The information on this website does not constitute financial advice, investment advice, or trading advice, and should not be considered as such. MakeUseOf does not advise on any trading or investing matters and does not advise that any particular cryptocurrency should be bought or sold. Always conduct your own due diligence and consult a licensed financial adviser for investment advice.