Definitions
- What are the base currency and the quoted currency?
- Example of Base and Quoted currencies
- US is often the base currency
- Why currencies are quoted in pairs?
What are the base currency and the quoted currency?
Base currency is the currency in a particular currency pair, the price of one unit which is always measured in terms of another (quote) currency.
Quote currency is the currency in terms of expressing the price of one unit of base currency.
The base currency in the designation of the currency pair is written first, as quoted the second one.
Example of Base and Quoted currencies
For example, GBP / USD means that the base currency – GBP (English pound), bought and sold we will in USD (U.S. Dollar).
A similar situation with a pair of EUR / USD (Euro against the U.S. dollar).
In a couple of USD / JPY base is USD, and in this case, we will buy and sell dollars for the JPY (Japanese Yen).
Similarly for the pair USD / CHF (U.S. dollar against the Swiss franc).
US is often the base currency
It should be noted that in some pairs the U.S. dollar is the base currency, and some – quote.
Historically, and this should be easy to take.
If the dollar is the base currency quotes, this is called a direct quotation, as if the dollar is the quote currency, the quotation is called the inverse.
Why currencies are quoted in pairs?
Knowing whether a U.S. base or quote currency pair, the trader can simply delete the reference to the dollar in the currency pair and say that «I bought a pound» or «sold yen».
All will become clear what kind of operation conducted trader.
For the pound, he bought a pound (pound – the basic currency in the pair, and the dollar – quote) and he sold the yen to the dollar (the dollar – the base, and the yen – quote).
But it is better to speak intelligently «sold the dollar against the yen».
Keep in mind that the prices reflected in the graphs is change in the price of the base currency against the quote.
Therefore, if the graph EUR (alias – EUR / USD) the price goes down, it means that EUR goes down and dollar goes up.
If the graph CHF (USD / CHF) price moves up, it means that the USD gets more expensive and CHF is getting cheaper.