How to Read Pairs – Beginners Guide on Reading Crypto Pairs!
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Whether you are planning to take advantage of our quality crypto signals or wish to trade on a DIY basis – you need to have a firm understanding of how to read pairs before getting started.
Much like in the world of forex trading, crypto pairs consist of two competing assets. The pair will have an exchange rate that moves up and down on a second-by-second basis – so your job is to correctly predict whether this will rise or fall.
In this guide, we cover the ins and outs of how to read pairs and walk you through the process of placing a trade from the comfort of your home.
What are Crypto Pairs?
In a nutshell, irrespective of whether you are a long-term investor or a short-term trader – the cryptocurrency markets are priced in pairs. Each pair will consist of two competing assets with an exchange rate that fluctuates throughout the trading day.
The most popular crypto pair in terms of trading volume is BTC/USD – which will see you speculate on the future value between Bitcoin and the US dollar. For example, if BTC/USD is priced at $39,500 – you need to determine whether this is likely to rise or fall.
It is important to note that there are two main types of crypto pairs that you need to be aware of. This includes fiat-to-crypto pairs and crypto-cross pairs. We explain the difference between the two in the sections below.
The most traded digital currency markets are fiat-to-crypto pairs. As the name implies, each pair will contain a fiat currency and a digital currency. For example, the previously mentioned BTC/USD is a fiat-to-crypto pair, as this contains the US dollar (fiat) and Bitcoin (digital). Other popular fiat-to-crypto pairs include ETH/USD, XRP/USD, and BCH/USD.
You might have noticed that the vast majority of crypto-to-fiat pairs contain the US dollar. This is because the US dollar acts as the benchmark currency for the digital asset industry. This is no different from the global commodity trading scene – with the likes of oil, natural gas, gold, silver, wheat, corn, and soybeans all quoted against the US dollar.
With that being said, it is also possible to access fiat-to-crypto pairs that contain an alternative fiat currency. For example, some cryptocurrency brokers will also offer pairs that include the euro, British pound, Japanese yen, or Australian dollar. These pairs attract less liquidity and trading volume, so you might find that the spreads on offer are much wider.
We cover how spreads and crypto pairs are related shortly in this guide.
Before moving onto the second pair type – let’s conclude this section by giving you an example of how a fiat-to-crypto pair can be traded.
- You want to trade Ripple against the US dollar – which is represented by the pair XRP/USD
- The price of XRP/USD is currently at $0.4950
- You think that XRP/USD is overvalued, so you place a sell order
- A few hours later, XRP/USD is priced at $0.4690
- This represents a decline of 5.25%
As per the above example, on a stake of $100, you would have made a profit of $5.25.
The second pair type that you will likely come across when trading digital currencies is a crypto-cross pair. Unlike the previously discussed pair type, this will never include a fiat currency. On the contrary, crypto-cross pairs contain two different cryptocurrencies.
- For example, the crypto-cross pair BTC/XLM would see you trade the exchange rate between Bitcoin and Stellar Lumens.
- At the time of writing, this pair is trading at 91,624.
- This means that for every 1 Bitcoin, the market is prepared to pay 91,624 Stellar Lumens.
Crypto-cross pairs that contain major digital currencies – such as Bitcoin, Ethereum, Ripple, Binance Coin, EOS, and Tether, attract lots of liquidity at online exchanges. But, if you decide to trade a crypto-cross pair that contains a less-liquid digital coin, this will result in low trading volumes and wide spreads.
With that said, the biggest challenge when attempting to trade crypto-cross pairs is that there is no way to price the position in fiat currency.
For example, if market sentiment on Bitcoin is strong, you know to go long on a pair like BTC/USD or BTC/EUR. However, when trading crypto-cross pairs, you essentially need to know which of the two competing digital currencies is favoured by the markets. Taking this into, when learning how to read pairs for the very first time, it’s best to stick with fiat-to-crypto markets.
Nevertheless, before we conclude this section, let’s run through a quick example of how a crypto-cross pair might work in practice.
- You want to trade Bitcoin against EOS – which is represented by the pair BTC/EOS
- The price of BTC/EOS is currently at 5,754
- You think that BTC/EOS is undervalued, so you place a buy order
- A few hours later, BTC/EOS is priced at 6,470
- This represents an increase of 12.4%
As per the above example, on a stake of $100, you would have made a profit of $12.40.
Quote vs Base Currency
As we have established thus far in this guide on how to ready pairs, two competing assets are always in play. If that’s a fiat-to-crypto pair, this will consist of one digital asset and one fiat currency.
If it’s a crypto-cross pair, this will consist of two digital currencies. Either way, in order to differentiate between the two assets, we refer to one side of the pair as the ‘quote currency’ and the other as the ‘base currency’. If you have previously traded forex, then you will already know how the quote and base currency works. If not, the good news is that this is pretty straightforward.
- The asset on the left side of the crypto pair is known as the ‘base‘ currency
- The asset on the right side of the crypto pair is known as the ‘quote‘ currency
For example, let’s suppose that you are trading ETH/USD. As per the above, Ethereum is the base currency while the US dollar is the quote currency. This makes sense, as ETH/USD is currently being traded at $2,560. As the US dollar is on the right-hand side of the pair, this is why it is quoted in USD and not ETH.
If you were trading a crypto-cross pair, this is where an understanding of the quote and base currency is really important. This is because you won’t have the assistance of a fiat currency like USD or EUR.
- Let’s suppose that you are trading ETH/BTC
- The pair is currently trading at 0.0708
- As ETH is on the left-hand side of the pair, Ethereum is the base currency
- As BTC is on the right-hand side of the pair, Bitcoin is the quote currency
As per the above example, for every 1 ETH – the market is prepared to pay 0.0708 Bitcoin
Buy and Sell Price of a Crypto Pair
When trading cryptocurrency online, your chosen broker or exchange will always show you two different prices on each pair. This is the buy (bid) and the sell (ask) price of the market in question.
This gap between both prices ensures that the trading platform always makes a profit no matter which direction the market goes. Known as the ‘spread’, you will want this gap to be as tight as possible. This is because the wider the spread, the more you are paying to your cryptocurrency broker.
For example, in the screenshot above, you will see that on BTC/USD, eToro is offering a:
- Buy price of $36399.35
- Sell price of $36249.35
The difference between these two prices amounts to 0.41%. Make no mistake about it, a spread of 0.41% in the cryptocurrency world is extremely competitive. This is especially the case when you consider that eToro allows you to trade cryptocurrencies without paying any commission.
It is important to note that the buy and sell price of your chosen crypto pair will fluctuate every second. The competitiveness of the spread is dictated by market conditions.
For example, if you were trading a major pair like BTC/USD when both the US and European markets are open, you’ll get some of the best spreads in the cryptocurrency industry. However, if you were trading a less liquid pair like EOS/XLM outside of standard market hours, the spread is going to be much wider.
It is also important to ensure that you know the correct ticker symbol for the pair in which you wish to trade. At one end of the scale, the likes of Ethereum (ETH) and Bitcoin (BTC) are relatively easy to decipher.
However, pairs like Stellar Lumens (XLM) and Ripple (XRP) might appear confusing to a newbie trader. To be 100% sure that you are viewing the correct ticker symbols for your desired pair – it’s best to have a quick look on CoinMarketCap.
How to Read Pairs and Place a Trade Today
You should now have a firm idea of how to read pairs when trading cryptocurrencies online. To conclude this guide, we are now going to show you a live example of how to read and trade crypto pairs.
Step 1: Open an Account With a Crypto Broker
Before you can start trading pairs, you will first need to join a top-rated crypto broker. There are hundreds of such providers to choose from in the online arena, so spend some time thinking about what your priorities are.
The most important metrics to consider are:
- Fees: How much does the broker charge in trading commissions, spreads, and transaction fees?
- Safety: Is the crypto broker authorized and regulated by at least one reputable body
- Markets: How many crypto pairs will you have access to? Does this cover fiat-to-crypto pairs, crypto-cross pairs, or a combination of the two?
- User Experience: Assuming that you new to reading crypto pairs, you’ll need to ensure that your chosen broker offers a great user experience
- Customer Support: What level of customer support does the crypto broker offer?
If you don’t have time to research dozens of crypto brokers right now – you might want to consider eToro . The platform offers a significant number of crypto pairs – all of which can be traded at 0% commission and tight spreads. Plus, you will have access to a free demo account – so you can practice reading and trading pairs without needing to risk any money!
71.2% of retail investor accounts lose money when trading CFDs with this provider.
Step 2: Fund Your Crypto Trading Account
If you decided to sign up with eToro – good news – as you can easily deposit funds with a number of everyday payment methods. This includes debit/credit cards issued by Visa and MasterCard, e-wallets, and bank transfers. On the other hand, if electing to use an unregulated cryptocurrency exchange, you will need to deposit funds with a digital asset.
Step 3: Browse Crypto Pairs
Now that you have made a deposit, you are ready to start trading crypto pairs. If you know which pair you want to trade, you can search for it. For example, if you want to trade Cardano (ADA) against the US dollar (USD) – you can search for ADA/USD.
Or, you can browse what pairs are available by scrolling down the list of supported markets.
Step 4: Buy or Sell Order
Regulated cryptocurrency trading platforms like eToro allow you to choose from a buy or sell order when entering the market. A buy order means that you think the crypto pair will increase in value. A sell order means that you think the crypto pair will decrease in value. Based on your own research (or our crypto signals) – choose from a buy or sell order before moving on to the next step.
Step 5: Enter Stake and Place Crypto Trade
Finally, you will need to enter the amount of money that you wish to stake on the trade. This is usually determined in US dollars across most platforms – including eToro.
If you are planning to execute stop-loss and take-profit orders (which you should), enter your desired price points.
Check all of the information entered and confirm the order to place your cryptocurrency trade!
How to Read Pairs: The Bottom Line
This guide has taught you how to read pairs – which is a crucial element when trading cryptocurrencies like Bitcoin. We have also explained the difference between fiat-to-crypto and crypto-cross pairs, and how to read and assess the spread.
All that is left for you to do now is place your first crypto trade. For this, we like eToro – as the platform is heavily regulated, supports plenty of everyday payment methods, offers dozens of crypto pairs, and charges 0% commission.
71.2% of retail investor accounts lose money when trading CFDs with this provider.