The Cypher pattern isn’t the most famous trading formation. Nevertheless, this trading instrument can help you better understand and forecast the price moves.
Cryptocurrency Pairs Trading: Definition, Explanation, and Example
2022-06-07 • Updated
Cryptocurrency is all around us. More and more companies have started accepting crypto as the means of payment (Tesla made so with Bitcoin in Spring 2021 and Dogecoin in January 2022). This article will help you to stay on the edge of technology and, most importantly, get the most from this emerging market. So get yourself comfortable, and let’s start our journey into the world of crypto pairs.
What are Crypto Pairs?
Naturally, they are similar to currency pairs. Just as it used to be, there are base and quote currencies. The only difference is that they are both cryptos. Pairs have a very simple structure: the first is the base crypto, and the second is the quote crypto, also known as the counter crypto.
For example: if you buy a BTC/USD, it means that you bought Bitcoin and sold Tether against it, and vice versa. Why Tether and not United States Dollar, you would ask? It is because trading crypto can only happen in the cryptocurrency world. And there is no USD in there. But don’t worry, Tether (also known as USDT or TET) is quite the same as the dollar. This is because they correspond in 1:1 proportion: for $100, you will get $100 in USDT (TET). With FBS, you don’t need to worry about transferring your Tethers in the USD, it happens automatically. Besides, you can deposit to your account both in the USD or Tether (and in the other currencies and cryptos as well).
To create a crypto account all you need to do is to open a FBS Trader application, choose crypto account (or demo crypto account) and tap “Create now”. And that’s all, you are ready to go!
We have numerous cryptocurrency pairs in FBS, starting from classic crypto against the dollar. Moreover, with CFD trading, you can trade unusual pairs that you won’t see on ordinary exchanges. Here is what pairs you can trade:
- Crypto-to-currency (BTC/USD, ETH/EUR, BNB/CAD);
- Crypto-to-crypto (BCH/BTC, BTC/ETH, LTC/BNB);
- Crypto-to-metals (BTC/XAU, XRP/XAG).
Yes, you can trade Bitcoin for gold and catch movements of two drastically different instruments. Isn’t that cool?
How Crypto Pairs Trading Works?
It is simple. If you think Bitcoin will rise against Litecoin (LTC), you need to buy BTC/LTC. And if you think Bitcoin should fall, you sell the pair. Crypto pairs enable you to analyze the prices of various cryptocurrencies. These pairs help illustrate the relative value of coins – for example:
- How much Bitcoin is in Ripple;
- How much Litecoin is in Ethereum.
As more pairs become available, traders have a larger variety of transactions they can perform. To successfully exchange one cryptocurrency token for another, you either need to find an exchange that supports that trading pair, or you will need to perform several transactions between different pairs in order to reach the final result you are looking for.
For example, if a trader wants to exchange Ethereum (ETH) for Ripple (XRP), he needs to find an exchange that supports this pair. In the worst-case scenario, the trader will first have to trade ETH for USD and then exchange that amount of USD for XRP. Unfortunately, the trader will have to pay more in taxes and fees in this scenario, as he has to perform two different transactions. Instead, if the exchange supported an ETH/XRP trading pair, the trader would have achieved the result in a single transaction.
Cryptocurrency Pair Trading Risks
The main risk you can face while trading cryptocurrencies is volatility. As you know, crypto is an emerging market with pros and cons. There are days when Bitcoin can make a 20% move, and you need to manage your risks to trade cryptos. There are several tips for you to get the most from cryptocurrency trading:
- Always put stop losses. You know that trading is a game of probabilities, and even if you are an experienced trader, every asset can go in the opposite direction. Stop losses will prevent you from liquidation and give you more control over your trades.
- Try to maintain an appropriate risk to reward ratio. It is a difference between your possible earnings and losses. Usually, traders have a 1:2 or 1:3 risk to reward ratio. This way, traders have a chance to profit even if they have less than a 50% win rate.
- Look after the Bitcoin, even if you are trading other pairs. Bitcoin is the king in the crypto market, and when the king is falling, almost every other cryptocurrency follows him. Such correlation can be used as an advantage. For example, when you see a double top pattern (a strong bearish chart formation) on the crypto you are currently trading, and Bitcoin is bearish as well, you can consider it a more sustainable sell signal. Thus, the risk of catching a dump transforms into a possibility of surfing significant price movement.
Best Cryptocurrency Pairs to Trade
The choice of crypto pairs depends on your trading strategy, tolerance to volatility, and personal tension to specific instruments. If you understand Dash to USD movements (DSH/USD), it is the perfect pair for you.
Some cryptocurrencies are more volatile than others. For example, Dogecoin (DOG) and Shiba Inu (SHB) are used to have greater moves. The reason for their movements is Elon Musk’s tweets. One of them boosted Dogecoin by 500% in January 2021.
To start with, here are some short explanations of the most popular cryptos available with FBS:
- The most popular and expensive crypto in the world. Some countries accept it as a means of payment. It’s relatively stable and highly secure because of its popularity.
- The second most popular crypto. Acts as an Internet computer. You can build decentralized applications with it. Also, it has a deflationary model (the total amount decreases with time) — one of the best cryptocurrencies out there.
- Elon Musk’s favorite crypto. Over the last year, it has gained more than 153 000% but lost 81% afterward. It was created as a joke but soon became the most recognizable cryptocurrency with an enormous fan base.
To choose a cryptocurrency pair, you need to do some research:
- First, find out what chosen crypto is about. You can find articles about most of our cryptocurrencies on the site. Ask in the FBS Analytics Telegram channel. More than 2100 traders will be happy to help you. If the crypto catches your attention, then move to the second step.
- Show your skills in technical analysis. For example, look at the chart and try to understand the movements of the coin. Sometimes it is easy to identify a price pattern. However, you don’t need to rush and open a trade too soon. It’s better to wait a little bit more than to act thoughtlessly.
If you complete these two steps, you are ready to go! Trade smart, and good luck in cryptocurrency pairs trading!
Hello traders! Trading strategies are essential for any profitable trader as they give the needed consistency in making decisions.
Why does market correlation matter? Correlation is a statistical measure that determines how assets move in relation to each other…
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