Base and Quote Currencies

As you know, currencies are traded in pairs - one is sold and one is bought. When written, it is usually in the form EUR/USD or just EURUSD. There are two currencies in each pair. The "top" one, the Euro in this example, is called the base currency. The "bottom", or second one, is called the quote currency.

What such pair represents is how much of the quote currency you need to buy one unit of the base currency. It also means how mcuh of the quote currency you can buy with one unit of the base currency. For example, right now the USD/JPY rate is 105.49. That means you need 105.49 Japenese Yens (quote currency) to buy one US dollar (base currency) with your forex broker's trading system.

The use of base and quote currency becomes important when talking about a currency becoming stronger or weaker. If a currency is the base currency and it becomes stronger against the quote currency, the exchange rate of the pair goes up. If the quote currency becomes stronger, the exchange rate goes down. This is only terminology, but it's important to understand.

Good luck with your trades,
Nadav

nadavs