Here’s an example of the Russian Rouble (RUB) falling past 58 on July 21, 2022, against the USD. In this case, the USD is the base currency, and RUB is the counter currency. Usually, many countries use widely accepted currencies, like USD, EUR, etc., to denote the value of a base currency.
For instance, an investor from Korea wants to know the value of the Japanese Yen (JPY). So he can quote it against the South Korean Won or the USD to estimate JPY value. The abbreviations used for currencies are prescribed by the International Organization for Standardization (ISO). Currency pairs use these codes made of three letters to represent a particular currency. In the GBPUSD pair, the order is determined both by the strength of the currency and by historical practice, as the British pound is the base currency and quote currency oldest currency in common use in the world today.
How to Read Base Currencies
Currencies constituting a currency pair are sometimes separated with a slash character. The slash may be omitted or replaced by a period, a dash, or nothing at all. If he expects the price to rise, he buys USD and can sell them again at a later date when the price has risen, thus making a profit.
Forex traders try to buy pairs in which they expect the base currency to grow stronger relative to the quote currency. Foreign exchange is conducted in currency pairs where one currency is the base currency and the other is the quote or counter currency. A base currency is the first currency in the pair, or the base of the trade.
Q: Can the base currency and quote currency change in a forex pair?
If you are looking for liquidity, then base currency may be a better choice. Ultimately, it is up to you to decide which is best for your individual needs. When trading forex, a trader has the option to trade both long (buy) and short (sell) positions. In the example above, the Chinese exporter will estimate the value of 1 CNY in terms of UYU.
The quote currency, on the other hand, is the second currency in the pair, and its value is quoted in relation to the base currency. It is possible to treat a currency pair as a single entity and apply buying and selling operations to it as a whole. For example, if a trader purchases the BTC/USD currency pair, they receive the base currency, BTC, in exchange for the quote currency, USD. Conversely, when a market participant decides to sell the BTC/USD currency pair, they obtain USD in return for a specified amount of Bitcoin. Macroeconomic factors affect the exchange rate of base currencies as well as quote currencies. Various economic indicators, such as inflation rates, employment data, GDP growth, and the interest rate of a country, can significantly impact a currency pair’s value.
What happens when the base currency is stronger than the quote currency?
The base currency, the first in the pair, serves as a reference or standard and is the currency being bought or sold. A quote currency is the second currency quoted in a foreign exchange rate. The quote currency is so named because it is the value of one unit of the quote currency in terms of the base currency. For example, if the EUR/USD exchange rate is 1.2500, that means it costs 1.25 USD to buy one EUR.
Can you make money trading forex?
The base currency is the first currency listed in a forex currency pair and acts as the reference point for all transactions within the forex market. This is because, in the forex market, one currency is always quoted in relation to another; when you buy one currency, you’re simultaneously selling another. The quote currency in foreign exchange is the standard used to measure the value of a base currency. That is, the value of the first currency in a currency pair is quoted against the value of the second one, which is the quote or counter currency. According to foreign exchange standards, if a trader wants to purchase €1, they must pay $1.55.
- You can check out the full list of cryptocurrencies traded on all the major exchanges in the TabTrader app.
- When a trader buys a currency pair they agree to obtain the base currency in exchange for the quote currency.
- Ultimately, though, which one is which doesn’t really matter – all that matters is that you’re using a strong base currency to buy or sell a weaker one.
- When trading, your goal might be to buy the base currency if you anticipate its value will rise or sell it if you expect it will decline, relative to the quote currency.
- Here’s an example of the Russian Rouble (RUB) falling past 58 on July 21, 2022, against the USD.
What are the terms base currency and quote currency used for?
- Pairs are written as XXX/YYY or simply XXXYYY, where XXX is the base currency and YYY is the quote currency.
- For example, if you click “Buy” on the XRP/USDT currency pair in the TabTrader app, you will be receiving Ripple tokens and selling Tether stablecoin tokens.
- The quote currency is significant in forex trading because it is used to calculate the exchange rate of the currency pair.
- For instance, if a trader believes that the value of the base currency will increase in the future, they will buy the currency pair.
- Now, let’s say that GBP/USD is trading at 1.2100; what this means is if a trader wants to buy one pound, they would have to pay 1.21 US dollars.
- The quote currency, on the other hand, is the amount of the second currency in the pair needed to purchase one unit of the base currency.
The currency pair quotation is read in the same manner when selling the base currency, so if a seller wants to sell €1, they will get $1.55 for it. The base currency is the currency that a trader buys or sells when trading forex. The base currency is always denoted on the left side of the currency pair, and it has a value of 1. For example, in the currency pair EUR/USD, the euro is the base currency. There is no such thing as a ‘good’ or ‘bad’ currency pair if you know your way around trading.
The base currency is normally considered the domestic currency and is followed by the quote currency, also known as the counter currency, in the pair. In the forex market, currency pairs are commonly depicted as XXX/YYY where the XXX is the base currency. The base currency is essential in forex trading because it is used to determine the value of the quote currency. For instance, if the EUR/USD currency pair is trading at 1.20, it means that one euro is equivalent to 1.20 US dollars. When trading in the foreign exchange market, traders will often choose to use a base currency other than their home currency. First, using a base currency that is more widely traded can help to ensure that the currency pair is more liquid, which means that it is easier to buy and sell without incurring large spreads.
A currency pair is a quotation of two different currencies, where one is quoted against the other. The first listed currency within a currency pair is called the base, while the second currency that is the benchmark is called the quote. Another interesting feature are some of the rules used by some financial institutions in their home market. In the case of the EURGBP pair, some UK institutions use the GBPEUR quote, the British pound being their natural base currency.
Before your trip, you check the exchange rate and see that EUR/USD is at 1.2. For privacy and data protection related complaints please contact us at Please read our PRIVACY POLICY STATEMENT for more information on handling of personal data. For example, in EUR/USD, the Euro is the base currency, and you can buy 1 EUR by paying USD 1.1. Traders could follow central bank announcements and statements to try and make calculated decisions on the movement of various currencies. It’s important to note that the concept of a “high” or “low” currency value is always relative to another currency.