Cryptocurrency pairs explained
Similar to trading currencies on the foreign exchange market, crypto exchanges rely on cryptocurrency trading pairs to illustrate the value of each asset. A currency pair means a quote of two different currencies, where one currency is quoted in relation to another. This shows how much of the quoted currency you need to buy one unit of the base currency. For example, it takes 0.0087 US dollars to buy 1 Japanese yen.
The three-letter code ISO identifies currency pairs on the currency market. At the same time, cryptocurrencies are determined by the coin symbol. Most cryptocurrencies have three-letter acronyms, such as BTC for Bitcoin and ETH for Ethereum.
What are crypto pairs?
A cryptocurrency trading pair is a way to compare the value of two different digital assets. For example, the most popular cryptocurrency trading pair is ETH /BTC. With this trading pair, you can find out how much one Ethereum is worth in Bitcoins. In other words, trading pairs show what amount of one coin you can get for a certain amount of another coin.
Trading pairs represent the options available to a trader on a particular exchange. Imagine you want to trade Binance USD (BUSD) for Ethereum (ETH), but the exchange you use does not support this trading pair. To convert BUSD to ETH, you will first need to exchange BUSD for BTC and then sell this amount of BTC for ETH. Unfortunately, you will have to pay higher fees in this case as you will have to execute two different trades. If the exchange supports BUSD/ETH trading pairs, you will achieve the final result in a single transaction.
Cryptocurrency exchanges usually offer a variety of currency pairs, giving you the option to choose depending on what assets you already have in your portfolio. For example, owning BTC, you can trade any pair listed on an exchange that includes BTC.
What is a base currency?
To fully understand crypto trading pairs, you need to learn about base currencies. A base currency means denoting an agreed-upon value for various assets. Base currencies are used to compare exchange rates between fiat currencies in different countries. For example, the USD is the base currency for comparing exchange rates to the Euro in Italy in the USA. The same principles apply to crypto assets.
If you want to trade a lesser-known cryptocurrency, you will need to have some of the pair’s base currency before making your trade. Usually, the most popular cryptocurrencies, such as BTC or ETH, are used as base currencies, but the accepted base currencies vary from exchange to exchange. You should first check which base currencies are accepted on the particular exchange of your choice and which trading pairs the exchange offers. Some exchanges also provide stablecoin trading pairs, for instance, USD-linked USDT and DAI. These hold physical one-to-one USD reserves or use another mechanism like DAI to preserve value.
Let us take a look at the crypto trading pair on CEX and DEX
PointPay is a centralized exchange, so it can be an excellent option to illustrate how crypto trading pairs look on CEX. In the Advanced version of the web interface, you can select the preferred option by clicking on the particular pair above the trading chart. For centralized exchanges, you can see the orders for trading in the order book.
Compared to a centralized exchange, trading pairs are created differently on a decentralized exchange. The exchange team lists the pairs on CEXes and assists users if they have issues with trading. In contrast, anyone can create any pair by simply creating a liquidity pool and adding coins to it that represent both sides of a trading pair. If you take Uniswap as an example, you will find the desired trading pair on the Pools tab.
Compared to a centralized exchange, you cannot see buyers and sellers on DEX. They use software known as the Automated Market Maker (AMM) model instead. It relies on a mathematical formula to value assets rather than an order book. AMMs are smart contracts that contain pools of liquidity that you can trade.
Cryptocurrency trading pairs allow investors to make informed decisions about the trades they want to make through the exchange. The more pairs available, the more opportunities traders have to make new transactions. To trade one cryptocurrency against another, you either need to find an exchange that supports that trading pair or make multiple transactions between different pairs.
Cryptocurrency trading pairs make it easy to trade one token for another. Crypto exchanges have realized that they need to support as many crypto pairs as possible to meet the needs of traders. At PointPay, we strive to offer our customers the most popular trading pairs. Therefore, we plan to increase the number of trading instruments offered on our platform this year.
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