What is a base and quote currency

When you look at a Forex pair for the first time, you might ask:

“How do I interpret EUR/USD?”

“Am I buying both EUR and USD?”

Not to worry…

I’ll explain.

In Forex, it takes 2 currencies to form a pair.

And there are 2 parts to the ‘equation’:

  1. Base currency – the currency in the first part
  2. Quote currency – the currency in the second part

In EUR/USD:

  • EUR is the base currency – the first part of the ‘equation’
  • USD is the quote currency – the second part of the ‘equation’

Here’s another example…

In USD/JPY:

  • USD is the base currency – the first part of the ‘equation’
  • JPY is the quote currency – the second part of the ‘equation’

So how does it work?

Let’s say EUR/USD = 1.1234…

This means €1 gets you USD 1.1234.

So, if you think EUR/USD will get higher than 1.1234 in future, you’ll go long.

Because you’re expecting:

  • Base currency EUR to strengthen
  • Quote currency USD to weaken

Does it make sense?

Great!

Then let’s move on to the next lesson...

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