The base currency is the first currency in a currency pair. It compares the values between the first currency and the second currency in a currency pair.
For example, in the EUR/USD, the EUR is a base currency and the USD is the quote currency. Let us understand this through an example. If the EUR/USD is quoted at $1.0600, this means that one has to pay 1.0600 USD to purchase one Euro.
In the forex trading, currency unit prices are quoted as currency pairs.
The base currency, which is also known as the transaction currency, is the first currency appearing in a currency pair quotation.
The second part of the currency quotation is called the quote currency or the counter currency.
For example, if you were looking at the EUR/USD currency pair, the euro would be the base currency and the U.S. dollar would be the quote currency.
In forex, currency pairs are written as XXX/YYY or simply XXXYYY.
Here, XXX is the base currency and YYY is the quote currency.
EUR/USD and USD/CAD are two examples of this format.
The abbreviations used for currencies are prescribed by the International Organization for Standardization (ISO). These codes are provided in standard ISO 4217.
Currency pairs use these codes made of three letters to represent a particular currency.
Currencies showing a currency pair are usually separated with a slash character. The slash is sometimes removed but it means the same thing.
FAQs
When you see a currency pair like EUR/USD = 1.55, it tells you how much of the second currency you need to buy one unit of the first currency. For instance, if you read EUR/USD = 1.55, it means €1 is worth $1.55.In the world of currency exchange, if someone wants to buy €1, they need to pay $1.55. The same logic applies when selling the first currency. So, if someone wants to sell €1, they’ll get $1.55 for it.
In foreign exchange, trading happens in pairs with one currency called the base currency and the other known as the quote or counter currency. The base currency is named as such because it shows how much of that currency you need to buy one unit of the quote currency.
Base currencies show how much of another currency, called the quote currency, you need to buy just one unit of the base currency. When the base currency is strong or pricey, you don’t need much of the quote currency to buy one unit of the base currency.
For example, consider a currency pair like USD/CHF, where USD is the base currency and CHF is the quote currency. If the value of the USD goes up, you’ll need fewer Swiss francs to buy one US dollar.
When choosing a base currency, traders think about a few things. Some traders stick to a certain currency they like, while others check how easy it is to buy and sell that currency in the market. This can lower costs and make trading currencies simpler.
Also, traders think about where the base currency comes from. Some prefer base currencies from countries with stable economies. They believe this helps make trading smoother.
Conclusion
The foreign exchange market is where people trade currencies. It’s open all day, every day, and there isn’t one main place where trading happens. Even though there’s no central spot, it’s still important to know some details if you want to make money from trading currencies. Currencies are traded in pairs, like USD/GBP, USD/CAD, and USD/CHF. Here, USD is the main currency, while the others are called quote currencies. When you’re deciding which main currency to use, think about the home country’s economy and how much its currency is traded. But if you already have a favorite currency, that works too.