Base Currency: Definition, Example, vs Quote Currency

Investors generally buy the pair if they think that the base currency will gain value in contrast with the quote currency. On the other hand, they may decide to sell the pair if they think that the base currency will lose value in contrast with the quote currency. It now wants to invest in its expansion there and purchase a warehouse. The warehouse currently costs $100,000, so the company looks at the USD/GBP currency pair to see how many British pounds sterling it needs to allocate to this investment. Understanding the role and dynamics of the base currency can help you make more informed decisions, whether you’re trading forex or simply exchanging money for travel.

  1. For instance, in the EUR/USD pair, the Euro (EUR) is the base currency, and the U.S.
  2. For example, in the EUR/USD pair, EUR is the base currency and USD is the quote currency.
  3. Base currency is also known as the primary currency, while quote currency is also known as the secondary or counter currency.
  4. So, if the US dollar is strong, you would want to execute a sell order on the EUR/USD pair.

By using a base currency, businesses can hedge against changes in exchange rates and protect their bottom line. The base currency will appear first, and will be followed by the second currency, known as the quote or counter currency. The price displayed on a chart will always be the quote currency – it represents the amount of the quote currency you will need to spend in order to purchase one unit of the base currency. You agree that LearnFX is not responsible for any losses or damages you may incur as a result of any action you may take regarding the information contained on this website.

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In the foreign exchange market, one currency will always be quoted in relation to another because you are buying one while selling the other. Forex quotations are stated as pairs because investors simultaneously buy and sell currencies. For example, when a buyer purchases EUR/USD, it means that he is buying euros and selling U.S. dollars at the same time. When the base currency (EUR) is high, it takes more to buy a single unit of the quote currency (USD).

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Base currency is also known as the primary currency, while quote currency is also known as the secondary or counter currency. Base currencies are usually more stable than their counterparts, which can make them more appealing to investors. When a country’s central bank intervenes in the market to buy or sell its currency, this can help to bitfinex review stabilize the base currency. Quote currencies, on the other hand, are often more volatile due to political and economic factors. These factors can include things like wars, natural disasters, and changes in government. As a result, quote currencies can be more risky for investors but they can also offer more opportunities for profit.

In any given currency pair, the base currency is always the first currency listed, and it’s the currency that is being traded against another—known as the “quote currency.” This only makes sense when comparing one currency with another. Thus we will speak of the quotation of the euro against the dollar (EUR/USD) or the pound sterling against the yen (GBP/JPY), for example. International codes are always used to name currencies in Forex. However, there are some exceptions to this rule – for example, with EUR/GBP the EUR is actually the base currency and GBP is the quote currency. Base currencies are also sometimes referred to as transaction currencies, while quote currencies are known as counter currencies.

In this example, the base currency is the euro and the quote currency is the US dollar. If the price of the EUR/USD pair is 1.3000, it means that you would need 1.30 US dollars to buy a single euro. A typical example of a currency pair is EUR/USD—the EUR is the base currency (also known as the transaction currency) while USD is the quote currency (or the counter currency). The quote currency, or the local currency, tells you how much of it you will need to spend to acquire a single unit of the base or foreign currency.

The exchange rate between two currencies directly correlates with the concept of base and quote currencies. If the exchange rate for EUR/USD is listed as finexo review 2.15, this means that 1 Euro can be exchanged for 2.15 US Dollars. All Forex trading involves buying one currency simultaneously and selling another.

Despite this, it’s important to understand some of the nuances if you wish to profit from currency trading. These assets are sold in pairs like the USD/GBP, the USD/CAD, and the USD/CHF. In these cases, the USD acts as the base currency while the others are referred to as the quote currencies. When you’re considering which base currency to use, consider the economy of the home country and how heavily it is traded. That is, of course, if you don’t already have a preferred currency in mind. A base currency is the first currency that appears in a forex pair quotation.

What are some benefits of using a base currency over a quote currency

Foreign exchange is conducted in currency pairs where one currency is the base currency and the other is called the quote or counter currency. A base currency is named so because it represents how much of that currency is needed to buy one unit of the quote currency. ndax review Base currency and quote currency are two common expressions in the Forex (foreign exchange) market. We want to clarify that IG International does not have an official Line account at this time. We have not established any official presence on Line messaging platform.

Base and Quote Currencies Explained (With Examples)

For example, in the USD/JPY quote, USD is the first currency mentioned; thus, it represents the base currency. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey.

Filip is an experienced search engine optimization writer with a demonstrated history of working in the marketing and advertising industry. He specializes in finance and information technology and is also an active investor. Discover how to trade with IG Academy, using our series of interactive courses, webinars and seminars.

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