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Using Tether Stablecoin as a Base Pair for Crypto to Crypto Trading

Albert Morgan

— 3 min read

Cryptocurrency trading can be volatile and risky. Prices fluctuate wildly, and it's easy to get caught up in the hype of chasing quick profits. However, by using a stablecoin like Tether (USDT) as your base trading pair, you can remove some of that risk and volatility from your crypto trading strategy.

What is a Base Pair in Crypto Trading?

In crypto trading, the base pair refers to the two coins that are being traded directly against each other. For example, if you are trading Bitcoin (BTC) for Ethereum (ETH), the BTC/ETH pair has Bitcoin as the base currency and Ethereum as the quote currency. This means that Bitcoin is the stable benchmark against which the value of Ethereum is measured.

The base pair is important because it determines the price and volatility of the trade. If BTC is the base pair, then ETH's price will move up and down against the value of Bitcoin. If ETH was the base pair, its price would remain more stable while Bitcoin's value changed.

Why Tether (USDT) Makes a Good Base Pair

Tether (USDT) is a popular stablecoin whose value is pegged 1:1 to the US dollar. This means 1 USDT is always supposed to be worth $1. Using Tether as a base pair minimizes volatility because its value remains stable compared to other highly volatile coins.

Here are some key benefits of using Tether as your trading pair:

  • Reduced Volatility - With Tether as the base, volatility of the quote currency is minimized. You are trading against a stable benchmark.
  • Preserve Crypto Profits - During times of high volatility, you can trade your crypto assets into stable USDT to lock in profits and preserve capital.
  • Take Advantage of Price Swings - If you see major price swings incoming, you can quickly trade out of your crypto position into the safe harbor of Tether.
  • Easier to Track Profits/Losses - With Tether as a base pair, it's easier to see how your quote coin is performing as its price changes are measured against a stable yardstick.

How to Use Tether for Crypto Trading

Follow these steps to utilize Tether for your crypto trading:

1. Fund your account with USDT

First, you'll need to purchase some Tether and transfer it into your crypto exchange account. You can buy USDT from brokers and exchanges like Coinbase, Kraken, or directly from Tether's website.

2. Select a USDT base pair

Leading exchanges like Binance, OKEx, and Huobi offer Tether as a base pair option for many popular coins. For example, you may see pairs like USDT/ETH or USDT/XRP.

3. Execute your trades as normal

Once you have USDT in your account and have selected a USDT base trading pair, you can execute trades normally. If trading ETH/USDT, you are buying and selling ETH against the stable value of Tether.

4. Move profits back into USDT

As your crypto positions gain profits, you can trade some back into USDT to lock in those gains and stabilize your portfolio. This helps hedge against turning profits into losses during corrections.

Tips for Effective Tether Trading

  • Don't keep all funds in USDT - diversify across assets.
  • Use limit orders to get better prices.
  • Watch for arbitrage opportunities between exchanges.
  • Don't chase pumps - patience pays.
  • Analyze the crypto's technicals before trading.
  • Set stop losses to protect your capital.

In summary, Tether provides stability in the notoriously turbulent seas of crypto trading. By anchoring your trades to its reliable price peg, you can sail smoothly through volatility and safely harbor profits.

What are the risks associated with using Tether as a base pair?

While using Tether as a base trading pair has its advantages, there are also some risks to consider:

  • Tether losing its peg - If the 1:1 peg to USD fails and Tether drops below $1, your trades could face losses. Always diversity across true stablecoins, not just Tether.
  • Regulatory risk - Tether has faced scrutiny over its reserves and backing. Any regulatory action could destabilize its peg.
  • Exchange risk - You must trust the exchanges listing USDT pairs to have proper reserves and liquidity. Research them carefully.
  • No insurance - Tether is not FDIC insured like bank deposits. You're dependent on Tether's reserves.
  • Opportunity cost - Keeping funds parked in Tether means missing out on potentially more profitable crypto trades.

By acknowledging these risks and implementing prudent trading habits, you can benefit from Tether's stability while mitigating its downsides. As with all things crypto, due diligence is key.

Are there any alternatives to using Tether as a stable base pair?

While Tether is the most popular stablecoin used as a base trading pair, here are some alternatives to consider:

  • USD Coin (USDC) - USD Coin is another stablecoin pegged 1:1 to the US dollar. It has stricter reserves than Tether and is gaining adoption.
  • Binance USD (BUSD) - Issued by crypto exchange Binance, BUSD matches the value of the US dollar. It offers deep liquidity on Binance exchange.
  • Dai (DAI) - Dai is a decentralized stablecoin built on the MakerDAO platform. It maintains its peg through overcollateralization and algorithms.
  • TrueUSD (TUSD) - TrueUSD is backed by US dollars held in escrow accounts, with greater transparency than Tether.
  • Paxos Standard (PAX) - PAX also has its US dollar reserves regularly attested to and transparently verified.

Diversifying across several of these stablecoins can hedge against the risks that come with relying solely on Tether. Stability brings peace of mind during crypto trading storms.

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