Every Forex pair has two currencies: the first one in a pair is called the base currency. And the second one is called a quote currency. It’s important to analyze both currencies prior to making a trade in order to increase the likelihood of success.
Quote Currency definition
In any currency pair, the first currency is called a base currency and the second one is called its quote currency. For instance, in EUR/USD, USD is a quote currency.
Why is understanding the Quote Currency important for traders?
- Understanding quote currency in trading can help traders learn how currency prices are created.
- In a currency pair, one currency is always valued in relation to another. Learning about each pair is essential in predicting future prices.
- Base and Quote currencies are terms widely used in trading. Learning what they are can make it easier to communicate with other traders.
Thorough Quote Currency Explanation
Quote currency is the currency that measures a base currency. Quote currency is also referred to as a counter currency. For instance, if the GBP/USD pair price is 1.15, it means that in order to purchase 1 British Pound, you need 1.15 US Dollars.
Due to the fact that currency valuation is made of two components and one currency is always valued in relation to another, currency prices have a more cyclical nature than other asset types.
Currencies are backed by nations and economies. A single currency might be a base currency in a certain pair and the same currency can be a quote currency in another. For example, in EUR/USD, the US Dollar is a Quote currency. In USD/JPY, the US Dollar is a Base currency.
Example of Quote Currency in Forex
In USD/CAD, the US Dollar is the base currency and the Canadian Dollar is its quote currency. When USD/CAD equals 1.35, it means that in order to purchase 1 US Dollar, 1.35 Canadian Dollars are needed. Quote currencies are there two measure the value of base currencies.
FAQs on Base Currency in Trading
Is the US Dollar a base currency or a quote currency?
Depending on a given currency pair, the US Dollar can be a base currency or a quote currency. For example, in EUR/USD, GBP/USD, AUD/USD and NZD/USD the US Dollar is a quote currency, because it is placed after the base currency. In USD/JPY, USD/CAD and USD/CHF the US Dollar is a base currency.
How is quote currency calculated?
quote currency is always calculated in relation to its base currency. Quote currency measures its base currency. For example: when we see that EUR/USD equals 1.02, it means that in order to buy 1 Euros (base currency), you need 1.02 US Dollars (quote currency).