What is a Cryptocurerncy Trading Pair?
In cryptocurrency trading, a trading pair denotes two different cryptocurrencies being traded against each other. For example, ETH/BTC is a trading pair that one might commonly see when trading on a cryptocurrency exchange. ETH is a short-hand representation for ether, and BTC a short-hand for bitcoin.
In the above image is a list of trading pairs all relating to Bitcoin.
Now that you understand what a trading pair looks like, how exactly do you go about interpreting one?
Interpreting a Cryptocurrency Trading Pair
As mentioned previously, a trading pair represents two different cryptocurrencies being traded against each other. What this means is, an individual must sell one cryptocurrency in order to by another. Using the ETH/BTC trading pair as an example, I would need to sell my bitcoin in order to buy ether.
The cryptocurrency on the right-hand side of the forward slash is known as the quote currency (BTC), this is the currency you must already own in order to buy the cryptocurrency on the left of the forward slash, i.e. the base currency (ETH).
The price of the trading pair is always denoted in the quote currency. For example, in the image above, the trading pair ETH/BTC has a price of 0.029824 BTC. This means that it would cost 0.029824 BTC in order to buy 1 ETH.
The price of 0.029824 is simply a ratio of the current price of Bitcoin and Ethereum.
As of the writing of this article, the current price of Bitcoin and Ethereum is $9,053.04 and $270.84 respectively. In order to arrive at the above price, all you would need to do is perform the following division calculation:
$270.84 / $9,053.84 ≈ 0.029824
Valuing Your Cryptocurrency
With trading pairs, there is more than one way of tracking the gains or losses of your purchased cryptocurrency. Those methods include:
- Tracking the fiat amount (e.g. Dollar, Pound, Euro)
- Tracking the crypto amount (e.g. BTC, ETH)
Tracking the fiat amount – If I wanted to trade in the ETH/BTC trading pair and used my 0.029824 BTC to buy 1 ether, all I would need to do is make a note of the price of ether at the time of purchase, which in this case is $270. If the price of 1 ether then increases by 20% to $324, I then know that I have made $54 in profit.
Tracking the crypto amount – Using the same example as above, I use my 0.02984 BTC to buy exactly 1 ether. However, as I am tracking the crypto amount, the 20% increase I care about would be in relation to in the ETH/BTC trading pair, which would be: 0.035789 BTC. This then means that if I sold my ether back to bitcoin at the current price, I would receive 0.035789 BTC.
Most people find it simpler to track the dollar amount changes as it is immediately clearer if they are currently up or down on an investment. However, tracking the crypto amount is also useful if your goal is to accumulate a specific cryptocurrency.
To conclude, a trading pair is simply one cryptocurrency being traded against another one. The cryptocurrency on the right-hand side of the pair is known as the quote currency, and the cryptocurrency on the left-hand side is known as the base currency.
There exists two main methods in tracking the gains or losses of a purchased cryptocurrency. You can either track the fiat amount (e.g. Dollar, Pound, Euro). Or you can track the crypto amount e.g. (BTC, ETH).