Exchanges utilize cryptocurrency pairs in order to facilitate the trade between different tokens.
A cryptocurrency pair is essentially a comparison of the prices of two crypto tokens. The most popular cryptocurrency pair is ETH/BTC. In this cryptocurrency trading pair, you can find how much one Ethereum token is worth in Bitcoin. In other words, trading pairs represent how much of one token you can purchase with a given amount of a different token.
Much like traditional currency trading, cryptocurrency exchanges rely on crypto trading pairs to illustrate each token’s value. When cryptocurrencies were first introduced as a financial alternative, there weren’t many trading pairs available. Most of the trades were tied to Bitcoin, as this is the major cryptocurrency token. Today, with the abundance of altcoins on the market, new trading pairs emerge by the hour.
Cryptocurrency trading pairs allow investors to make smart decisions about the transactions they want to accomplish through an exchange. As more pairs become available, traders have a larger variety of transactions they can perform. In order to successfully exchange one cryptocurrency token for another, you either need to find an exchange that supports that trading pair, or you will need to perform several transactions between different pairs in order to reach the final result you are looking for.
In this sense, trading pairs represent the availability of different trading options on a given exchange. In a hypothetical scenario, a trader is looking to exchange Litecoin (LTC) for Polkadot (DOT), however, the exchange they are using does not support that trading pair. This means that the trader will first have to trade LTC for Bitcoin and then exchange that amount of Bitcoin for DOT. Unfortunately, in this scenario, the trader will have to pay more in taxes and fees, as he has to perform two different transactions. If the exchange supported a LTC/DOT trading pair, the trader would have achieved the end result in a single transaction.
Cryptocurrency trading pairs are an essential part of the crypto economy, as they allow for the easy swap of one token for another. Crypto exchanges have become aware of the need to support as many crypto pairs as possible in order to meet the needs of traders. In addition, certain crypto trading pairs may offer better trading conditions in terms of fees and taxes. While unpopular trading pairs between altcoins usually incur more significant trading fees, the most sought-after crypto trading pairs have proven themselves to be a better deal. However, correlations between different cryptocurrencies may sometimes result in more profitable trading pairs for altcoins. Considering this, it is important to research and take note of the fees and taxes associated with each trading pair that might be of interest.