Pair
A cryptocurrency pair, often referred to as a 'Pair', is an essential concept in the world of digital currency trading. 'Pair' is a term borrowed from traditional foreign exchange trading, where one currency is always traded against another - this pair constitutes a 'currency pair'. In a similar fashion, trading on a digital currency exchanges also involves "pairing" two cryptocurrencies.
What is a Pair?
A Pair refers to the two currencies that are being traded against each other. For example, in a Bitcoin (BTC) / Ethereum (ETH) pair, BTC is the base currency and ETH is the quote currency. The base currency is the one that is being bought or sold, while the quote currency serves as a reference for determining the value of the base currency.
Basics of Pair Trading:
- Base Currency: This is the first currency represented in a Pair. It is the currency you intend to buy or sell.
- Quote Currency: This is the second currency in a Pair. It acts as the measurement tool, showing how much of the base currency can be obtained for one unit of this currency.
Why Are Pairs Important?
Trading cryptocurrency pairs allows investors to diversify their portfolio, which can potentially mitigate the risk associated with trading a single cryptocurrency. The idea is to try and profit from the volatility (or differences in prices) between two different cryptocurrencies. If you believe that one cryptocurrency will rise in value compared to another, you would buy that pair. Conversely, if you think that one cryptocurrency will lose value compared to another, you would sell that pair. By analyzing cryptocurrency pairs and monitoring market trends, you can make more informed decisions about your trades.
Examples of Pairs
Every cryptocurrency exchange offers an array of trading pairs, with the most common pairs often featuring Bitcoin (BTC), Ethereum (ETH), or a stablecoin like Tether (USDT) as one of the currencies. Some popular examples of cryptocurrency pairs include:
- Bitcoin/Ethereum (BTC/ETH)
- Ethereum/Tether (ETH/USDT)
- Bitcoin/Tether (BTC/USDT)
- Ripple/Bitcoin (XRP/BTC)
These pairs mean that you are trading the base currency (the first one listed) against the quote currency (the second one listed). Each pair holds a market value, representing how much of the quote currency is needed to buy one unit of the base currency. As with traditional forex trading, the aim is to buy a pair when it is undervalued and sell it when it is overvalued to make a gain.