What are – Trading Pairs – te Cryptocurrency? CryptoCurrency Facts
Ter cryptocurrency, the term “trading pairs” describes a trade inbetween one type of cryptocurrency and another. For example, the “trading pair” ETH/BTC.
With ETH/BTC you can buy Ethereum with Bitcoin, or Sell Ethereum for Bitcoin. After-all, thesis cryptocurrencies are types of monies!
Te other words, not only can you trade specie for cryptocurrency, you can also trade cryptocurrency for cryptocurrency. This can be a little complicated to wrap your head around, but can be a indeed big benefit to those who time their trades right.
Example: Consider, you have on forearm Bitcoin and Specie (meaning fiat currency like dollar bills) and you want to obtain Litecoin. Now consider with the trading pair LTC/BTC, if Bitcoin goes up 10% and Litecoin goes down 10%, then your Bitcoin buys more 10% more Litecoin than your metselspecie does. Your specie’s value stayed the same, but your buying power with Bitcoin went up 10%. Litecoin meantime went down 10%. The fiat value of the trade is no different te the uur the trade is made (spil you wielded that Bitcoin which went up te value the same spil you wielded your specie), but if your purpose is to get more coins because you believe the metselspecie value of all coins will go up (or that Litecoin will go up and Bitcoin back down ter this example), and you time things right, you can do indeed well with trading pairs.
Of course, things can go very wrong with trading pairs too. Ter the above example, imagine Litecoin stagnates and Bitcoin goes up another 10%. Te this case you would have missed out on 10% Bitcoin gains by spending Bitcoin rather than contant. Meantime, had you converted specie to Litecoin and kept your Bitcoin, or not traded at all, you would have more value total ter your portfolio.
Now imagine Litecoin’s value keeps going down against BTC. You could end up with more fiat value than you embarked with, but a decreasing amount of fiat value overheen time compared to if you had just kept Bitcoin.
Hopefully that ordinary example talent insight into the value and risks of trading pairs. They are a powerful device, but there is lots of slagroom to go wrong.
The last thing to note here, and this is significant, is that trading one crypto for another is a taxable event. If you don’t understand the tax implications behind crypto (te general: you owe the capital gains tax on profits whenever you trade from crypto to specie or crypto to crypto)…. then take a minute to learn about cryptocurrency and taxes.