72% of retail client accounts lose money when trading CFDs, with this investment provider. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how this product works, and whether you can afford to take the high risk of losing your money. The euro currency originated because of the Maastricht Treaty in 1992 and was introduced as an accounting currency in 1999.

Start to trade now

Similarly, the quote currency helps you understand how much of it is needed to acquire a unit of the base currency, thereby guiding your trading decisions. When trading, your goal might be to buy the base currency if you anticipate its value will rise or sell it if you expect it will decline, relative to the quote currency. Understanding the difference between these two terms is crucial for anyone engaged in forex trading, international business, or global travel.

This may seem like a large minimum investment (and it is), but currency trading can have margin factors as low as 2% depending on the currency pair. That means if you trade one lot with dollars as the base currency, you only need $2,000 in the account to control $100,000 in the trade. More commonly traded currency pairs, such as the major pairs discussed above, have lower spreads because they occur more often, which allows the exchange to make money on the volume. The U.S. dollar is the base currency for most of the major currency pairs, including USD/JPY (Japanese yen as the quote currency), USD/CHF (Swiss franc), and USD/CAD (Canadian dollar).

1. The second part of the currency quotation is called the quote currency or the counter currency.
2. In a direct quote, the local currency is thus always the quote currency.
3. Trading is done on regulated exchanges called Forex (short for “foreign exchange”) and off-exchange markets.
4. In this example, the base currency is the euro and the quote currency is the US dollar.

What Happens When a Base Currency Is Stronger Than a Quote Currrency?

IG International Limited is part of the IG Group and its ultimate parent company is IG Group Holdings Plc. IG International Limited receives services from other members of the IG Group How to buy kava including IG Markets Limited. Traders could follow central bank announcements and statements to try and make calculated decisions on the movement of various currencies.

When the base currency is high, it means that the value of the base currency has increased relative to the quote currency. Currency quotes tell you how much of the quote currency is needed to exchange for one unit of the base currency. This means that you will need to assess which currency in the forex pair is considered ‘weak’ or ‘strong’ when compared to the other currency. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018. Thomas' experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning.

Investors generally buy the pair if they think how to trade silver on forex that the base currency will gain value in contrast with the quote currency. On the other hand, they may decide to sell the pair if they think that the base currency will lose value in contrast with the quote currency. Traders closely monitoring these factors could make informed decisions and predict potential currency movements. Another way in which base and quote currencies are used is with companies doing business internationally. As we saw earlier, this is the opposite of what will happen if a trader looks at the base currency when opening a position.

What is a quote currency?

Conversely, when trading commodities or stocks, you're using cash to buy a unit of that commodity or a number of shares of a particular stock. Economic data relating to currency pairs, such as interest rates and economic growth or gross domestic product (GDP), affect the prices of a trading pair. Forex assets are sold in pairs like the USD/GBP, the USD/CAD, and alpari forex broker review the USD/CHF. The first currency in the pair is the base currency, while the second is the quote currency. Forex currency pairs show how much of a quote currency traders need to sell to buy one unit of the base currency.

The main difference is the base currency will always appear first and the quote currency second. When a trader buys the base currency, they simultaneously sell the quote currency. Whereas if they sell the base currency, they are simultaneously buying the quote currency. A company can watch the exchange rate of their local currency against another country’s currency, where business is conducted to calculate how much they’ll need to charge for their products or services. Without understanding which currency serves as the base in an exchange rate, you may end up making less informed decisions that could cost you financially. In any given currency pair, the base currency is always the first currency listed, and it's the currency that is being traded against another—known as the "quote currency."