Pairs trading algorithm is a pretty interesting topic; it needs a lot of work that you need to understand clearly to get to maximize your profit and ensure you’re doing the right thing when it comes to getting higher profit out of both pairs of cryptocurrencies. The first thing you need to do is get your base currency which is, either by buying it or mining it on your own.
What do algorithms have to do with cryptocurrency trading?
Cryptocurrency is heavily based on algorithms; it’s basically generated by dedicating your computer to solve a bunch of machine algorithms in order to “mine” the coin and ensure you’re getting the benefits of operating your computer for days. But cryptocurrency trading is not all about trading the coin you’ve mined for real money; you can also trade these cryptocurrencies to another one of the same nature. This might ensure a quicker profit gain rate when you’re applying the trading pair’s technique. It basically needs a huge collection of information to make your final decision and successfully pick the pairs you’re going to trade in.
Things to keep an eye on for pair trading
You need to always calculate the risks you’re taking with this step.
· Maintaining a safe ratio for trading
· Analyzing the rate for both coins with each other
· Understand the risks you’re taking for doing this pair trade
A brief example of the pair trade system:
So, we went briefly into the exchange system of cryptocurrency; in order to understand how the system works, we will do a demonstration of the BTC/ETH pair trading.
Say you bought 1 BTC when the BTC’s price is 3,000 USD; that means that you have 3,000 USD worth of Bitcoin in your wallet right now. Meanwhile, Etherium is valued at 300 USD.
This means that if you want to buy 5 ETH coins right now, you will have to trade them for 0.5BTC in order to get these coins. So, by now you have 0.5 BTC and 5 ETH coins. That's a pretty good number, right?
The thing is, you have to make sure that you are in a win-win situation, but how?
Say that BTC is expected to increase by 0.05% and ETH is expected to increase by a ratio of 10%. This means that you currently have 1,575 USD worth of BTC and 1650 worth of USD worth of ETH.
Here, you can see that the pair trade started with a budget of 3,000 USD and ended with 3,225 USD in a day; but does that mean that a tweak was made of some kind or cheated in a way to get more money? No, it doesn’t. It’s just like market stocks and Forex trading for example; an estimation was made that is well-documented by a lot of online sources and market exchange websites that made it possible to get a few bucks instead of mining more coins or focusing the whole time and budget on tracking the analysis of one single currency.
Precise awareness for pair trading
Be aware, it’s your full responsibility if you lose any kind of money on the way to this journey, because after all, it's just expected and estimate process offered to you by some source. It doesn’t have to happen by any means. It’s an unstable market that may collapse at any moment.