Many times people try to compare the cryptocurrency world with the traditional financial markets and while some things may be similar there are a ton of differences. Cryptocurrency is the "people's market" as I like to refer to it because of the low barrier of entry versus traditional markets. That means a lot of new & inexperienced people that are trading for the first time in their lives are entering the game daily. One of the things that stumped me at first was how "trading pairs" worked and why they were important. Follow The 'Stache as I walk you through why trading pairs are important and the reason why you may need to be on multiple exchanges.
What are "Trading Pairs" in Cryptocurrency?
Trading Pairs are the two different types of currency that are being traded against each other. The very first trading pair you will run into as a beginner is going to be your native fiat/Bitcoin which would look like "USD/BTC" on most exchanges if you were trading in US Dollars. When you see two different currency symbols next to each other like this it means you can buy & sell these assets against each other. When you are just starting out you will probably be depositing USD into a place like Coinbase or GDAX and then purchasing Bitcoin. I will use GDAX as an example to start as it is a very simple exchange with only a few trading pairs.
You can see in this screenshot that GDAX has only 4 markets, BITCOIN (BTC), BITCOIN CASH (BCH), ETHER, & LITECOIN. Each of these markets has 3 trading pairs each (except BCH) which means you can buy and see that currency against those other currencies. For instance Bitcoin has a trading pair for USD, EUR, and GBP fiat currencies. If you don't see the currency you want to trade against in a list like this then the exchange likely does not offer it and that is where things start to get messy.
One Pair To Rule Them All
If you are just sticking to the "big three" on a simple exchange like GDAX then you can keep things pretty simple, but if you want to get into trading in the Altcoin market then you are going to have to head to another exchange. The first thing newbies realize at a more advanced exchange is that many don't even offer a native fiat currency pair like BTC/USD. You can only trade in crypto/crypto pairs like BTC/ADA. This may come as a surprise to those newer to the world of crypto, but basically major coins like Bitcoin & Ethereum are used as the base trading pairs for most exchanges out there.
You have to first buy these coins to then trade in the Altcoin markets to get your favorite up and coming coins like TRON, XRB, POE, and more. This is something a lot of newbies may not have been told up front and could be an easy thing to miss. This is why you typically start at a fiat exchange where you can deposit USD or your native currency and buy into major cryptos like Bitcoin or Ethereum that you will then transfer someplace else for trading alts. This simple fact is what makes the BTC & ETH trading pairs very important when you are looking to buy that next Altcoin flavor of the month that has got your FOMO senses a-tingling. Here you can see a screenshot from my other favorite exchange Binance.
They have a TON of trading pairs, but as you can see only against BTC, ETH, BNB (Binance token, their own discount token), and USDT (Tether). You can trade dozens and dozens of coins on Binance, but only against these four cryptos. That is why you must make sure you are buying and sending the right coins to your exchange of choice.
Check Your Pairs At The Door
If you are not careful you can end up sending the wrong type of coins to an exchange that does not have the trading pairs you really want. It is best to make sure of this and then double check it again before sending your coins. This way you save yourself from the transaction fees that you will incur if you have to send it to yet another location to get the trading pair you want. Right now in crypto it seems hard to find one location where you can do it all so knowing your trading pairs and how and why they work is a pretty important factor when it comes to being as efficient as you can.
Trading Pairs are the two different currencies that you can buy and sell against each other on an exchange. Not all pairs are offered at every exchange and you typically have to buy into a major cryptocurrency like Bitcoin or Ethereum first before entering into the Altcoin market. Take note of which pairs are offered before sending because you don't want to waste those transaction fees!