Base and quoted currency in a currency pair

Base and quoted currency in a currency pair

Base and quoted currency in a currency pair

A novice trader simply needs to know what the base and quoted currencies are, and how they differ from each other in the example of a particular currency pair.

A currency pair on Forex can be considered a tool for trading operations (purchase/sale), as a result of which currency pairs form a constantly changing exchange rate. In this article, we will look at the concept of the base and quoted currency, provide specific examples, and what features currency pairs have in the Forex market.

What is the base currency in Forex?
Looking at any currency pair, which is usually denoted by three symbols, it is important to understand where the base currency will be.

base and quoted currency

Remember, this definition applies exclusively to the first currency in the currency pair. For example, take the GBP / USD currency pair. In the first place is the currency GBP (British pound sterling). This is the base currency. It is the same with other currency pairs. Now it is clear where the base currency will be in the currency pair?

The main currency pairs on Forex are based on the base currency of the US dollar (USD). That is why when explaining the opening or closing of a position. Most Forex traders in the conversational part miss the base currency and say “I sold the canadian "" or ""I sold the franc"". It is assumed that the trader is selling USD against the canadian dollar or franc. It is recommended to correctly explain your operations on trading positions of currency pairs. It is more correct if the trader says “ "" I sold the US dollar against the canadian dollar.""

It happens that a trader's trading account is not opened in us dollars, for example, in the British pound. Then, when trading EUR / USD or EUR / CHF, the British pound will immediately be converted to the US dollar or franc, and these automatically converted funds will be used to purchase the base currency.

As you can see, the base currency in a currency pair is determined quite simply. But at the same time, most traders practically do not delve into the nuances of forming currency pairs.

Not everyone understands where the base currency will be in the history of quotes during trading operations. Most Forex enthusiasts believe that there is not much difference if you buy GBP for us dollars or Vice versa (USD for GBP). It would seem that there is no difference from the permutation of currencies. However, if you look at it, the difference is quite noticeable.

What is a quoted currency and how do I determine it?
In addition to the base currency, the currency pair has a quoted currency. Its example can be explained on the GBP / USD currency pair. If GBP is the base currency (ranked first), then USD (ranked second) will be the quoted currency.

It turns out that the quoted currency is the one that is in second place in any of the currency pairs. In other words, the base currency is purchased for the quoted currency.

We found out that the right side of the Forex chart always displays the price in the quoted currency. For example, if a trader trades the GBP / USD pair, then the price will be shown in US dollars. That is, how many us dollars it will take to buy 1 British pound sterling.

Features of the main Forex currency pairs
Let's talk about the features of such basic pairs.

the quote currency

The EUR/USD currency pair is probably the most popular when considered as a trading asset. It has significant liquidity. It is always someone buying and selling. It has average volatility and is used in thousands of trading strategies. During the trading day, the trend of this pair usually changes 3 times.

During the release of important news, the pair shows significant jumps. All these points should be taken into account when trading.

In addition, the EUR/USD pair has a significant impact on a number of other pairs. The biggest movements associated with this currency are observed in the American and European trading sessions.

The GBP/USD or British/American pair is the second most traded pair by volume. It has high volatility. It is good to predict movements using technical analysis. Often likes to show false breakouts and movements, confusing traders.

Without proven trading tactics and certain knowledge in the field of trading, it is better not to trade this currency pair. It is also important to distribute risks correctly, since there is a high probability of remaining without a Deposit.

So, we have figured out what the base and quoted currency is on Forex. We also showed the example of the GBP/USD pair how to determine them. They told us where the base currency is located in the currency pair. In addition, we learned about the features of the main Forex pairs such as dollar / Euro and pound / American. Knowing these features, you can reduce the percentage of losing trades.

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