Forex trading basics: Knowing the difference between your base and quote currencies

Julie Brownlee, Fsp Invest, 22 May. 2014

Tags: forex trading basics, currencies, base currency, quote currency, term currency, what is a base currency, what is a quote currency, currency trading, currency pair, trade forex,

If you want to trade the most liquid financial market in the world, you’ll have to get to grips with how it works. You need to know about how currencies trade. And one of the most integral parts of understanding that is knowing how currencies are quoted. You need to know what a base currency is. And you need to know what a quote currency is. Let’s take a closer look…

When you trade forex, you’ll trade in currency pairs

Currencies always trade in pairs. Think about when you buy foreign exchange to go on holiday. For example, your bank will quote you how many rands it will cost you to buy so many pounds or dollars.

When you look at a currency quote, the first currency in the pair is the ‘base’. The second currency in the pair is the ‘quote,’ Timon Rossolimos in Forex Fundamentals explains.

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Let’s have a look at how this works with the help of an example… You have the currency pair of the euro and the dollar, or EUR/USD.

The euro part of the pair is the base currency. This is because it’s the first currency in the pair. You’ll normally find that the base currency is the strongest of the pair.

Identifying the strongest currency when you trade forex

When you trade a currency pair, you now know how to work out which one is the strongest.

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The dollar part of the pair is the ‘term’ or the ‘quote’ currency. You’ll normally find that the second currency in the pair is usually the weakest.

This means when you trade a currency pair, you’ll know how to identify which one is the weakest.

Most experienced forex traders trade strong currencies as the base and the weak currency as the term.

So there you have it, knowing the difference between your base and quote currencies.

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