#TradingPairs101
Understanding Trading Pairs in Finance
Trading pairs are a core concept in any kind of market trading—whether it's cryptocurrencies, forex, or even indices. If you’re looking to trade one asset for another, you’ll be working with trading pairs.
What Are Trading Pairs?
A trading pair shows the value of one asset compared to another. It tells you how much of one asset you need to buy a unit of the other. In crypto, for example, you might see BTC/ETH—which means you’re trading Bitcoin for Ethereum, or vice versa. In a pair like BTC/USD, you're trading Bitcoin against the US dollar.
Types of Trading Pairs
Fiat Pairs: These involve traditional currencies like the US dollar (USD), euro (EUR), or Japanese yen (JPY). Example: BTC/USD.
Crypto Pairs: These consist of two cryptocurrencies. Example: ETH/BTC, where you're trading Ethereum for Bitcoin.
Cross Pairs: These don’t involve a major fiat currency like the US dollar. For instance, EUR/GBP in forex or LTC/ETH in crypto.
How Do Trading Pairs Work?
When you trade a pair, you're buying one asset while selling another at the same time. The pair's price shows how much of the quote currency (second in the pair) you need to get one unit of the base currency (first in the pair).
For example, if SPX500/USD is trading at 4,300, that means one unit of the S&P 500 index is worth 4,300 US dollars.
Popular Trading Pairs by Market
Indices:
SPX500/USD (S&P 500 vs. USD)
NAS100/USD (Nasdaq vs. USD)
Cryptocurrencies:
BTC/USD (Bitcoin vs. USD)
ETH/USD (Ethereum vs. USD)
LTC/BTC (Litecoin vs. Bitcoin)
Forex:
EUR/USD (Euro vs. USD)
USD/JPY (US Dollar vs. Yen)
GBP/USD (British Pound vs. USD)
Key Terms to Know
Base Currency: The first currency in a pair. This is the one you’re buying or selling.
Quote Currency: The second currency in a pair. It shows how much of this you need to buy one unit of the base currency.
Exchange Rate: The value of the base currency expressed in terms of the quote currency.