The base currency is the first currency listed in a currency pair. It represents the currency being bought or sold in relation to the second currency, which is called the quote currency.
Example:
In the currency pair EUR/USD = 1.1000:
- EUR is the base currency
- USD is the quote currency
This means:
1 Euro (EUR) = 1.10 US Dollars (USD)
Function in Trading:
- When you buy a currency pair, you are buying the base currency and selling the quote currency.
- When you sell the pair, you are selling the base currency and buying the quote currency.
Why It Matters:
- All forex trading is based on the base currency’s value relative to the quote currency.
- Profit or loss is calculated based on the base currency’s movement.
Common Base Currencies:
- EUR – Euro
- USD – US Dollar
- GBP – British Pound
- JPY – Japanese Yen
- AUD – Australian Dollar
- Base Currency – The first currency in a pair (e.g., EUR in EUR/USD)