Cryptocurrency trading pairs work like a token barter system. These are digital assets that are exchanged for each other through an exchange. Trading pairs are useful because some cryptocurrencies can only be purchased through other cryptocurrencies. Additionally, knowing crypto trading pairs will help you broaden your horizons beyond the mainstream cryptos you keep hearing about.
Additionally, since crypto markets are highly volatile, arbitrage opportunities open up when trading between tokens. Arbitrage trading refers to the rapid buying and selling of tokens in different markets to exploit price differences. Also, with a trading pair, you no longer need to sell one cryptocurrency for fiat currency and then use that money to buy the other cryptocurrency. But why is this a problem?
Each transaction incurs a gas fee. These transactions are not only inconvenient but also costly. Suppose you have 0.005 Bitcoin (BTC) and want to buy Ether (ETH). As of this writing, you would spend an average of $1.858 per transaction on the Bitcoin blockchain. Luckily, the gas fee on buying ETH is negligible ($0.00008). But it is not necessarily a constant value. If you had made an ETH transaction on May 1, 2022, you would have paid $0.001 per transaction, or 1150% more! Such is the magnitude of fluctuations in gas costs.
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Crypto trading pairs are also useful when buying a lesser known cryptocurrency. Most exchanges will generally only allow you to purchase such coins in exchange for a cryptocurrency with which they are associated. The most commonly paired cryptos include Bitcoin and Ether. Some exchanges also offer stablecoin trading pairs. This is useful because most stablecoins are pegged to USD, which makes it easier to estimate a coin’s value.
In the early days of crypto, when there were very few blockchains, trading crypto pairs was not a lucrative option. But, since then, thousands of cryptocurrencies have sprung up, and the number of trading pairs that exist today is more than you and I can imagine.
A crypto trading pair is obtained by correlating two cryptocurrencies and then arriving at their relative value to each other. By doing so, the value of a cryptocurrency can be measured in terms of another cryptocurrency. For example, BTC/ETH is one of the most popular trading pairs. At the time of writing, the value of 1 BTC is equivalent to that of 15.09 ETH. This inter-token exchange is facilitated by decentralized exchanges (DEXs), which allow crypto trading without an intermediary.
But wait, doesn’t a DEX also use a blockchain since it is a decentralized platform? So wouldn’t that incur gas charges as well? Yes, you’re right. It would.
However, you would only make one transaction instead of the two required otherwise. Additionally, most DEXs are powered by the Ethereum blockchain and therefore require nominal gas fees. If you want to prioritize your transaction, you can shell out higher gas fees and incentivize miners to process it.
To sum up, trading pairs allow investors to reap the benefits of lower gas fees. It also allows seasoned investors to take advantage of asset price differences between exchanges. As such, they have become an integral part of the crypto sphere and have already proven to be a better option for crypto trading.