How to Choose Crypto Pairs to Trade?
Every crypto trading history on every crypto trading platform starts with choosing a pair to trade. There are different types of them: some pair one coin to another, and some pair crypto to fiat. What to choose, what to know about trading pairs, and how to avoid risks? Let’s dive deeper into the topic.
What are crypto trading pairs?
There are two definitions worth your attention: cryptocurrency trading pairs and base currencies.
Trading pairs in crypto refer to crypto acquisitions that can be exchanged for each other on any crypto exchange platform. If you have ever seen the BTC/ETH or BCH/USDT, you have seen crypto trading pairs. Why is it important to know crypto pairs with high liquidity and know the most popular crypto trade pairs in general?
For starters, there are some cryptocurrencies that can be bought only with certain crypto coins. Also, knowing how different crypto pairs behave will help you profit from price differences in different assets and on different markets.
Base currency is the main currency in the crypto pair, marked first in it. For BTC/ETH, Bitcoin will be the base currency. In cryptocurrency trading, base currencies help you compare the prices of different assets and see the profit. In other words, comparing Bitcoin to Litecoin is way easier than comparing Solana to Litecoin ‒ Bitcoin has higher liquidity than Litecoin and is fairly wider known than Solana, allowing it to be the first in the crypto trading pair.
The best crypto exchange platforms like Binance allow you to choose from many different pairs to trade. You can easily compare the prices of different cryptocurrencies and evaluate their worth. This way, if you have some Bitcoin, you will be able to trade with any pair that has Bitcoin as a base currency. Also, some crypto coins are more popular than others, meaning you can find more pairs with them. This versatility is important when you want to trade more coins, you simply have more opportunities to choose from.
There are also trading pairs that use both cryptocurrency and fiat money: the most popular would be Bitcoin to US dollar. A lot of people start trading with this pair as it’s easy and less volatile from a long-term perspective. But there’s so much more to this pair ‒ definitely worth another article.
What to consider for the crypto pair?
Aside from owning some crypto, you have other features to consider when it comes to choosing a pair to trade. There are three factors you have to consider: fundamental analysis, technical analysis, and liquidity. Let’s see what you should look for there.
This method measures the value of every crypto asset based on financial factors. Fundamental analysts consider macroeconomic and microeconomic factors to determine risks and opportunities for the price to increase or decrease. In the end, fundamental analysis finds out if the currency is overvalued or undervalued.
Using principles of fundamental analysis, you can predict if the price for the currency will go higher or lower ‒ this way, you will be able to choose the best crypto pair to trade your assets.
On the other hand, we have technical analysis. This method studies opportunities retrospectively, using statistical data to predict further behavior of the crypto coin price and its potential to trade. The data is gathered from previous price movements and share volumes. Basically, technical analysis uses numbers and previous crypto price movements to predict where the price will go or to find the trading tendency.
Fundamental analysis, compared to the technical one, chooses to study present factors, while is also a good technique. You don’t need to choose between these two methods ‒ P2B advises you to use both fundamental and technical analysis to see where the price of the base currency of the crypto trading pair will go.
Liquidity is a major factor to consider while choosing a crypto pair to trade. To start off, you have to choose a base currency ‒ this is where you need to keep liquidity in mind.
Liquidity in crypto is a way to describe the ability of the coin to be converted into other currencies. High liquidity is often associated with lower risks to trade, but there’s no correlation. If you trade on a short-term market, you need liquidity to actually sell assets and profit. Also, the higher is the liquidity of a certain crypto market, the more accurate is the technical analysis due to a longer history to analyze and base predictions on.
Crypto pairs vs fiat to coin pairs
If you already own some crypto assets, you can make them your base currency and find pairs with them to trade. On the other hand, sometimes you don’t have this opportunity ‒ this is where you have to find stable fiat to coin trading pairs so you can buy some crypto assets from your fiat budget.
By fiat, we mean any kind of “real” currency ‒ be it USD, EUR, or any other. This way, fiat to coin trading pairs means that you buy crypto currency for your dollar budget (or any other currency supported by your bank account). Unfortunately, not every crypto exchange platform offers many fiats to coin pairs if not at all. Also, some countries regulate this kind of exchange, taxing them or not allowing you to use the national currency for these transactions. Either way, up to this date, there are no countries that have totally banned buying crypto for fiat, so the exchange won’t be a problem.
There comes another problem: sometimes buying crypto with your fiat currency is not supported on the exchange or trading platform, which is where you buy BTC and trade it. In this case, Bitcoin only mediates the transaction if you initially wanted to purchase altcoins to trade them further. Remember that every transaction can come with a fee ‒ this way, you’ll pay extra fees for buying Bitcoin and for buying altcoin with it after the initial fiat to coin transaction.
Other disadvantages of using fiat currencies include:
- Slowness. If you need altcoins, you have to create a few orders ‒ one for buying Bitcoin, and a few others to trade altcoins. Some of these transactions come with fees.
- Speaking of fees, they can be pretty high. Also, the volatility is high ‒ the market fluctuations can cause Bitcoin to lose a big percentage of its worth within an hour ‒ not the best choice.
Also, this way altcoin is tied to Bitcoin and is dependent on it. This goes both for crypto to crypto and fiat to crypto pairs. If Bitcoin falls, the alt will go down, too.
With fiat to coin pairs, liquidity matters even more than fundamental or technical analysis ‒ it’s all about choosing the right moment and the right currency to trade rather than predicting where the price will go.
Choosing a base currency
The choice of trading pair is mostly about personal preference. You can choose a not-so-popular pair or stick to the stable one. Prices and liquidity differ from market to market, so it’s up to your analytical skills and your budget.
We recommend choosing pairs based on the base currency ‒ this way, you’ll most likely find a liquid and profitable pair.
- Bitcoin is a versatile choice. It offers you a lot of pairs with a large liquidity pool, meaning you will have no problem trading in both the short and long term. The only disadvantage with this crypto is high fees and, on some platforms, really slow transactions that won’t allow you to withdraw funds as swiftly as you expected. Withdrawing Bitcoin will be tied with some extra fees, but if you make a better profit, it will cover them all.
- Ethereum. ETH is the second crypto after Bitcoin with high liquidity. It’s a really versatile crypto coin that will ensure you will benefit from most transactions. Also, most tokens not supported for exchange for Bitcoin can be easily exchanged for Ethereum ‒ most of the time it’s rather a technical preference than a financial one. The benefits of the Ethereum as a base currency are clear: Ethereum is versatile and more flexible than Bitcoin. Also, since the technology is more flexible, a lot of new tokens emerge using Ethereum ‒ this is why ETH is popular for buying tokens fresh off the listings.
- Litecoin. LTC is nearly universally supported and has shown no dramatic price twists so far. Also, being a flexible and stable altcoin, LTC allows faster transactions with lower fees, which can benefit your trade in a lot of ways. You won’t see a sharp increase in the price here, so buying Litecoin works great only if you plan to trade it for other crypto coins that have the potential to skyrocket their prices. For that, you’ll have to have some patience as most pairs prefer Bitcoin to Litecoin. Tread carefully and trade wisely here.
- Dogecoin. This is one of the best stable coins to exchange for low-value coins. You can use it to buy crypto tokens and coins both for long-term and short-term trading as far as Bitcoin holds its high price. You see, compared to Bitcoin, Doge is the best crypto coin to trade low-value crypto assets ‒ the transactions go faster, the fees are close to being non-existent, and you also have the opportunity to have additional profits from low-value assets speculations.
- USDT. Have some extra crypto assets you don’t want to trade with? Convert them to USDT to have a stable coin pool for further transactions. It will always equate to the worth of 1 USD, so you have nothing to lose if you purchased a bit more fiat dollars than you expected.
All in all, the most popular pairs are tied to these currencies. BTC/USDT, BTC/ETH, ETH/SOL, BTC/BCH ‒ all of them are pretty popular with fair stability and high liquidity of each asset. For example, for a few years, BTC/ETH was the most popular and stable pair on most exchanges and crypto trading platforms. You can see the best pairs and their trading volumes on every platform. The best crypto trading pairs usually have a higher trading volume and liquidity. If you are new to the crypto trade, basing your choices on these two parameters is your best and safest option.
Crypto pair trading is both neutral to the market and non-directional. With crypto pair trading you will profit anyway, regardless of market conditions and microeconomic factors’ influence. Of course, you can’t deny that there are some serious drawbacks.
For example, you always have the risk to execute the trade, not at the best price. This applies even more to markets with a small capitalization and low liquidity ‒ everything there shows more dynamics and instability.
Also, you should consider trying to trade on a safe trading platform ‒ P2B offers you this option. Safe trading platforms choose stable pairs and secure your assets with extra protection, meaning you won’t lose your crypto to hackers. This is the main benefit of using a centralized crypto exchange platform with KYC and other forms of account validation.
The popularity and stability of crypto trading pairs change on a monthly if not daily basis. These trends are influenced by many factors. For example, new cryptocurrencies get released, rising in volume and affecting existing crypto pairs. Some crypto tokens or coins can get major updates ‒ the best example would be how Bitcoin Cash was forked from Bitcoin. Now BTC/BCH is a crypto trading pair worth your attention due to BCH’s high liquidity.
Using fundamental and technical analysis, you can evaluate and predict which currencies and their pairs will dominate the crypto market. With this knowledge, you can enter the market with a clever fiat to coin transaction, trade, and make profits on the hottest crypto pairs. Always use fundamental and technical analysis to analyze a financial portfolio of every crypto coin in pairs ‒ this way, you’ll learn more about some currencies and predict where their values will go.