In the cryptocurrency world, trading pairs are assets that can be exchanged for each other. This can be generally divided into two categories - crypto cross-trading pairs and crypto fiat trading pairs.
Let's take a closer look at the following types of trading pairs.
Cryptocurrency cross pairs
Crypto cross pairs involve two different digital currencies trading against each other.
For example, if you see the BTC / XLM trading pair, it means that BTC (Bitcoin) is the base currency and XLM (Stellar) is the quote currency.
When you trade BTC / XLM, the trade works as follows:
- Let's say that the crypto cross pair BTC / XLM costs 110.023.
- This means that for every Bitcoin you trade, you will receive Stellar worth 110.023 in return.
Your task as a trader is to speculate whether this crypto cross pair exchange rate will rise or fall.
As you can see, this process can get a bit complex for traders - especially beginners. You need to have in-depth knowledge of both cryptocurrencies in the trading pair and their markets.
As a result, many novice cryptocurrency traders choose to trade against a more familiar government-issued fiat currency - like the US dollar or the euro.
This brings us to the second type of cryptocurrency trading pair.
Fiat-to-cryptocurrency pairs
As mentioned above, a fiat-to-cryptocurrency consists of a fiat currency and a digital currency.
When you see the BTC / USD or BTC / EUR trading pair, it indicates the price of the cryptocurrency in the corresponding fiat currency. For example, if the price of BTC / USD is $40,000, it means that one Bitcoin has a value of $40,000.
Most often, cryptocurrencies are traded against US dollars in https://exness-ch.club/xia-zaiexness/, as this is the world's reference currency. Depending on the online trading platform, you may also be able to trade digital currencies against other fiat currencies such as British Pounds, Euros, Japanese Yen, Australian Dollars and others.
Here is an example of a trade between fiat and cryptocurrency.
- Let's say you want to trade Litecoin against the USD.
- You will find the pair designated as LTC / USD on your trading platform.
- The price of LTC / USD is listed as 180 USD.
- If you think the pair is undervalued, you place a buy order worth 2,000 USD.
- A few days later, LTC / USD is valued at 210 USD.
- This means that the price of the pair has increased by 16.66%.
- As such, you place a sell order to cash in your profits.
In this trade, you returned 2,332 USD - with 332 USD as profit. Almost all cryptocurrencies available on the market today can be traded against other fiat currencies. Another point to note is that fiat-to-cryptocurrency pairs are often traded via CFDs (Contract for Differences). In simple words, when you use CFDs, you don't own the asset directly. Instead, you are trading a financial instrument that tracks the real price of the crypto asset.
The main advantage of trading CFDs is to get access to zero commissions and tight spreads. In addition, you have the ability to apply leverage to your trades and short sell with ease.