In this article we will define two basic concepts for trading in Forex: the base currency and the quote currency.
What is the base currency?
The base currency is the first currency listed in a currency pair traded in the Forex market. Sometimes you can also see this term as primary currency (although this term is not very suitable for its meaning in economics). In accounting base currency is the one used to represent all company accounts.
For example, if we have the pair EUR/USD, the euro (EUR) is the base currency and the US dollar (USD) is the quote currency or counter currency. The price given for the pair represents how much is needed of the quote currency to buy one unit of the base currency or, which is the same, how much of the quote currency can be obtained when one unit of base currency is sold.
What is the quote currency?
The counterpart currency or quote currency is the second currency listed in the currency pairs traded in the Forex market.
In a currency transaction, the exchange rate or price quotation is given in units of the quote currency equivalent to one unit of base currency. For example, if we have the pair USD/JPY with a price of 120.00, the base currency is the US dollar, the quote currency is the Japanese yen and the exchange rate indicates that 120.00 yen equal to1 US dollar.