The Role of Synthetic Pairs in Cryptocurrency Trading: A Unique Advantage with Aplo

In the cryptocurrency market, trading pairs are essential. They allow investors to exchange one asset for another, providing a basis for price discovery and facilitating liquidity. Typically, trading pairs are offered directly by exchanges, known as natural trading pairs. However, when there isn’t a direct trading market for a desired pair, synthetic pairs become invaluable.

As a crypto prime broker for institutional investors, Aplo provides advanced synthetic trading pair solutions that enable clients to trade pairs not directly available in the market. Here’s a closer look at how these synthetic pairs work and why they are so valuable.

Understanding Trading Pairs and CLOBs

A trading pair is the exchange rate between two assets, such as BTC/USD. It indicates how much of the quote currency (USD) is needed to purchase one unit of the base currency (BTC).

Exchanges operate with a Central Limit Order Book (CLOB) system, which aggregates buy and sell orders and matches them at an agreed price. This system is highly efficient, providing rapid and fair trades while establishing market prices based on available buy and sell orders.

However, not all desired trading pairs have the necessary liquidity on traditional exchanges. For instance, a European retail investor may want to trade ATOM for EUR, but most exchanges offer limited liquidity for this pair. Or a hedge fund may need to rebalance a portfolio between assets like SOL and UNI, which don’t have direct pairs. For situations like these, synthetic pairs offer a solution.

Synthetic Trading Pairs Explained

A synthetic trading pair is a virtual pairing of two assets that are not directly traded together. Instead, the pair is created by executing trades across intermediary pairs. This approach provides several key benefits:

• Indirect Exchange: By leveraging multiple existing pairs, the trading platform can simulate a direct exchange. For example, to create a synthetic ATOM/EUR pair, trades could be executed through ATOM/USDT and USDT/EUR pairs, allowing clients to trade as if ATOM/EUR were directly available.
• Liquidity Aggregation: Synthetic pairs pool liquidity from multiple trading pairs across various exchanges. This approach increases market depth, offering better prices and reducing slippage, which is especially beneficial for institutional clients who need to execute large orders efficiently.
• Smart Routing for Optimal Execution: Advanced technology determines the most cost-effective paths for trades, often using popular assets or stablecoins as intermediaries. This ensures more favorable execution prices.
• Reduced Slippage: Synthetic pairs offer access to deeper liquidity pools. This can result in more favorable rates compared to less liquid direct pairs, particularly for institutional investors trading large volumes.
• Expanded Trading Options: This approach enables access to markets without direct trading pairs, allowing investors to take advantage of opportunities that may not be available otherwise.

The Aplo Advantage: Leveraging Synthetic Trading Pairs with Advanced Execution Algorithms

Aplo offers an unparalleled synthetic trading experience by integrating advanced execution algorithms, such as VWAP (Volume-Weighted Average Price), on synthetic pairs. This means that clients can access the benefits of reduced market impact and streamlined workflows while leveraging the advantages of synthetic pairs. Our system allows for flexible, efficient trading without sacrificing price quality or execution speed.

Without Aplo, clients would face several challenges if they attempted to execute synthetic pairs themselves:

Option 1: Do-It-Yourself Approach on Exchange

• Limited Liquidity Access: Without a prime broker’s extensive venue connections, individual traders lack the full market depth, often leading to higher costs.
• Complex Order Routing: Manually determining and executing the most efficient trade path is time-intensive and may yield suboptimal results.
• Increased Operational Risk: Managing multiple exchange connections and trades across different platforms raises the risk of errors and technical issues.

Option 2: Working with an OTC Desk

• Higher Costs: OTC desks generally charge wider spreads or higher fees for synthetic pairs due to the added complexity.
• Less Transparency: Quotes from OTC desks often include undisclosed markups, potentially obscuring the true market price.

In contrast, Aplo’s synthetic pair solutions provide transparency, lower costs, and a streamlined process. With our prime brokerage services, institutional investors gain access to deep liquidity, reduced slippage, and algorithmic execution on a range of synthetic pairs—whether for rebalancing portfolios or executing specific trades with difficult-to-find pairs.

Conclusion

Synthetic pairs offer a unique advantage in the cryptocurrency market, especially for institutional investors seeking efficiency, flexibility, and access to markets beyond natural trading pairs. At Aplo, we specialize in creating synthetic pairs to meet our clients’ diverse trading needs, ensuring they can access liquidity and execute trades that would otherwise be unavailable. By leveraging synthetic pairs through Aplo, institutional clients can trade with confidence, knowing they are supported by innovative technology and expert execution.

As the digital asset space evolves, synthetic trading pairs are paving the way for more efficient, accessible markets. Aplo stands at the forefront of this evolution, providing institutions with the tools they need to navigate and succeed in the complex world of crypto trading.

Ready to explore how synthetic trading pairs can enhance your trading strategy? Connect with our team of experts to learn more about Aplo’s tailored solutions for institutional investors. Feel free to reach out to us at contact@aplo.io — we’d love to help you unlock new trading opportunities.