Online Forex Trading

Forex Currency Trading Pairs - The Starting Point [part 2]

by Paul Bryan

In Forex currency pairs, the value of one currency is determined by its comparison to another currency. When the Forex currency pairs are quoted, the first currency is referred to as the base currency and the second currency is called the counter or quote currency. The base currency is always equal to 1 monetary unit of exchange (e.g. 1 EUR, 1 GBP, 1 USD). The currency pair shows how much of the quote currency is needed to purchase one unit of the base currency.

The Forex currency pairs are usually traded and quoted with a 'bid' and 'ask' price. The 'bid' is the price at which the broker is willing to buy and the 'ask' is the price at which he is willing to sell.

For example, if the USD/EUR currency pair is quoted as - USD/EUR = 1.5 and you purchase the pair, this means that for every 1.5 euros that you sell, you get US$1. If you sold the currency pair, you receive 1.5 euros for every US$1 you sell.

Base Currency

This is the first currency quoted in a Forex currency pair. It is also known as domestic currency or accounting currency and sometimes referred to as the primary currency of a Forex currency pair. For example, CAD/USD is a currency pair. Here the Canadian dollar is the base currency while the U.S. dollar is the quote currency. The price represents how much of the quote currency is needed to get one unit of the base currency.