Cryptocurrencies represent a hot trend in the world of finance. Actually, crypto is changing the world right now.
Drastic price swings, rocketing up- and downward movements, and the emergence of new altcoins are still at the forefront of financial talks, drawing a vivid interest among existing and potential traders and investors.
However, if you’re a newcomer to the crypto market, willing to start trading cryptocurrencies, it’s very easy to get lost in the piles of useless information.
Taking that into consideration, we will try to introduce you to cryptocurrency trading pairs, explain how they work and why you should care.
What are cryptocurrency pairs?
The first and the foremost, by trading cryptocurrency pairs you can profit from the currencies changing rates, which is the primary business for crypto traders.
Trading pairs represent the two different types of currency, whether it’s a crypto-to-crypto, or a crypto-to-fiat currency, being traded against each other.
Just entering the crypto market, it’s very likely that your first trading pair would be USD/BTC, or EUR/BTC, depending on the native fiat currency you use for trading.
Crypto trading process:
- Stage 1: Converting fiat to base cryptocurrency
- Stage 2: Converting base currency to altcoins
As a beginner, you deposit USD, for example, into GDAX or Coinbase (the major cryptocurrency trading platforms) to purchase Bitcoin that will further serve as a base currency to trade altcoins.
If you’re satisfied trading crypto base currencies, you can stick to one exchange that allows you to buy also Litecoin (LTC) or Ethereum (ETH), which are considered additional base currencies alongside the famous Bitcoin (BTC).
However, if you want to buy some altcoins, like POE, TRON, XPB, etc., you should look for a cryptocurrency exchange that accepts only cryptocurrency deposits and offers a wide variety of coins to trade, i.e., you can use only the cryptocurrency, not a fiat currency, to buy altcoins here.
Therefore, before starting all these, you should definitely follow two rules:
- Choose a proper cryptocurrency wallet, or even two, to manage and store your coins safely
- Choose a proper cryptocurrency exchange, or even two, that meets all your trading requirements and offers a good variety of cryptocurrencies, available for trading
Trading CFDs on crypto pairs
For those, who are not ready to delve deeper into the abovementioned procedure, there is another option – CFDs.
It may well be a good solution for people, who want to bring cryptocurrencies into their lives but are not ready to buy real coins.
Besides, contracts for difference (CFDs) may become an attractive trading alternative for a much broader audience of prospective traders.
In choosing CFDs you get almost the same opportunities, as in regular trading, but with some significant additional perks:
- Trading only the price difference without the need to buy the underlying asset
- Trading on leverage, provided by the broker, which significantly broadens your investment opportunities
- Possibility to make a profit from both, rising and falling markets
Today, the ultimate CFD trading platforms offer you the ability to trade a great variety of crypto pairs.
The good thing is, you don’t need to actually buy the coins and have the bother of keeping them somewhere. You can just choose the cryptocurrency you find interesting and promising from a trading perspective and then go ahead following its price fluctuations against fiat currencies or its peer cryptos.
An example of trading CFD on crypto-to-fiat currency pair
Let’s imagine you’re interested in EOS trading.
In a nutshell, it’s a blockchain-based decentralized operating system.
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EOS is designed to support commercial-scale dApps by providing all of the necessary core functionalities, which enables businesses to create blockchain applications in the same manner as web-based applications. EOS attracted everyone’s attention by promising to implement two features:
- Eliminate transaction fees
- Achieve great scalability (processing millions of transactions per second)
Well, having chosen a trusted and well-performing CFD trading provider, now you can trade a pair you’re interested in.
If you expect that EOS may go up against USD soon, you should buy (go long) with the EOS/USD pair, and vice versa, if you predict the cryptocurrency’s decrease in value, you can open a selling position (go short).
If the price of EOS moves in the direction you predicted, you will profit, but if the price moves against you, you will bear a loss.
Trading pairs are an interesting trading instrument available today on many platforms and exchanges. Take your time to get all the necessary information and start trading cryptocurrencies the way you like the most.
Please, remember that CFD trading is risky and doesn’t suit everyone. You should consider whether you can afford to take the high risk of losing your money.
Photo credit: The feature image “night shot in Hamamatsucho 2 Chome, Tokyo, Japan” was done by Zengame.
Editorial notice: Please review your local laws on trading before you engage in any such activity.
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