The world of cryptocurrency trading is changing rapidly. Mainstream brokers are beginning to offer cryptocurrency on their trading platforms, which means more investors are putting their money in coins. That leads to higher market volatility, which leads to more opportunities to make money in the cryptocurrency market.
The way cryptocurrencies are traded is also changing. Rather than going through exchanges and doing things manually, you can now find brokers that support cryptocurrency pairs with the help of InvestinGoal. They have helpful guides on brokers like XM; brokers that offer cryptocurrency pairs for you to trade.
The cryptocurrency pairs themselves are unique. To help you understand cryptocurrency as a commodity and how you can enter the market through mainstream brokers, here are five things you need to know about cryptocurrency pairs.
They Make Trading Easy
When you see a cryptocurrency pair, you are basically seeing an exchange between the two coins in the pair. ETH/BTC represents the exchange between Ethereum and Bitcoin. Rather than doing the exchange manually, brokers now put them in pairs to simplify the process.
When you buy ETH/BTC, you basically buy Ethereum using Bitcoin. When you sell the pair, on the other hand, you are selling Ethereum for Bitcoin. Traditionally, this process is done manually through a cryptocurrency exchange. Today, it is a one-click execution through your broker’s trading platform.
There Is a Spread
Commodity brokers like XM make their profit in the spread between Buy and Sell prices for crypto pairs. The spread can be big or small depending on the broker you use to trade cryptocurrencies. The larger the spread, the more market movement you need to make a profit.
If you see a spread of 10 points, you basically start your trade with 10 points in losses. As the market moves to the direction you predicted, the 10 points get covered and you’ll start making profit on the 11th. The larger the jump, the more profit you’ll bank in return.
One thing to keep in mind about spreads is that you can find brokers with lower spreads. Some brokers, however, charge additional transaction fees and other costs, so make sure you take all of these cost elements into account before deciding to sign up for an account.
Know the Fundamentals
Going deeper into cryptocurrency pairs, you will find that the principles behind how prices for pairs are determined is actually quite complicated. There are three elements to take into account when reviewing a crypto pair: the price of both cryptocurrencies and their values against USD.
Those three elements affect each other. In the case of ETH/BTC, any movement of value for the two cryptocurrencies will affect the price of the pair. If Ethereum goes up by 100 points and Bitcoin stays at the same price, you are looking at 100 points in profit with Buy position – we’ll get to this in a bit.
On the other hand, movement of Bitcoin price affects the price negatively. If the price of Bitcoin goes up by 100 points, you are looking at a potential loss of the same amount.
Buy and Sell
There are two positions you can open in the market: long and short. Going long means expecting the price of a cryptocurrency pair to go up. In the case of ETH/BTC, you are basically expecting the price for Ethereum to go up by a larger margin than the price of Bitcoin.
Going short means expected the opposite. You want the price of Ethereum to go down, or the price of Bitcoin to go up by a higher margin than that of Ethereum. Going long and short are common terms in the financial markets, so expect to see them as you read guides from sites like https://investingoal.com/.
Going long and short are basically buying and selling the cryptocurrency pair you are trading in different orders. For instance, going short means you sell the pair hoping to buy it at a lower price. Depending on how you analyze the market, you can profit from both movements just as easily.
There Are Risks to Manage
One last thing to understand before you start exploring cryptocurrencies as commodities is the risk associated with crypto trading. Keep in mind that the same risk-return trade-off principle that applies to other financial markets, applies to the cryptocurrency market as well. In order to bank larger profits, you have to bear larger risks.
The risks associated with cryptocurrency trading can be managed. Upon understanding your risk profile, you can determine the stop loss and target profit for every position you open. You can also utilize more advanced risk management strategies like hedging and averaging depending on the pairs you trade in the market.
So, are you ready to trade cryptocurrencies as pairs? Now that you know these five important things, choosing a broker that offers cryptocurrency pairs and opening your first position will be easier than ever.