{"id":645227,"date":"2024-11-15T14:30:41","date_gmt":"2024-11-15T13:30:41","guid":{"rendered":"https:\/\/ftmo.com\/?p=645227"},"modified":"2024-11-15T14:42:57","modified_gmt":"2024-11-15T13:42:57","slug":"how-is-base-currency-vs-quote-currency-defined-in-forex","status":"publish","type":"post","link":"https:\/\/ftmo.com\/en\/how-is-base-currency-vs-quote-currency-defined-in-forex\/","title":{"rendered":"How is base currency vs quote currency defined in forex"},"content":{"rendered":"
Why is the dollar second in most majors pairs on forex, but first with the Japanese yen and Canadian dollar? And why is the euro first in all its pairs and the Japanese yen second in all its pairs? The explanation is very simple.<\/em><\/p>\n Trading in the currency market is specific in that by opening a position, you are speculating on the rise of one currency and\/or the fall of the other. So in one instrument you have two currencies where the value of one currency is quoted against the value of the other currency. The currencies in a currency pair are also referred to accordingly, i.e. the first currency is referred to as the base currency and the second is referred to as the quoted currency. Thus, in the most traded currency pair, the euro is the base currency, whereas the US dollar is the quoted currency. The EURUSD pair thus represents the value of one euro expressed in a given amount of US dollars.<\/p>\n Forex traders take it for granted that currency pairs are traded in a predetermined format and don’t think much about it. But why are individual pairs on forex quoted as we know them from trading platforms? The answer is actually very simple, it is due to conventions and in principle there is no precise rule by which currency quotes in forex are determined.<\/p>\n Only the abbreviations used for the currencies themselves are clearly defined, and these are defined by the International Organization for Standardization (whose abbreviation ISO comes from the Greek word isos) within the ISO 4217 standard.<\/p>\n The USD is the most traded currency on the forex market, and therefore one would expect the US currency to be the top currency in most pairs. However, the position of currencies in a currency pair is not determined by the liquidity of the currency or its strength<\/a>. The truth is that the USD is often listed as the base currency in pairs involving less-traded or exotic currencies, and its value tends to be higher in these cases.<\/p>\n The basic rule that determines the mutual quotation of the ten most important currencies, i.e. the currencies of the G10 countries, is to arrange the currencies in the following order: EUR – GBP – AUD – NZD – USD – CAD – CHF – NOK – SEK – JPY<\/b>.<\/p>\n In the GBPUSD pair, the order is determined both by the strength of the currency and by historical practice, as the British pound is the oldest currency in common use in the world today. It originated in 760 and was pegged to gold until 1940.<\/p>\n This is similar to the AUDUSD and NZDUSD pairs, for example, as both the Australian and New Zealand dollar have historically had a close link to the British pound. Here, the US dollar is the stronger currency, yet it is listed as the second most valuable currency (however, in the early days of forex<\/a> in the 1970s, both AUD and NZD were more valuable than the dollar).<\/p>\n In the USDCHF pair it is again the weaker currency, the Swiss franc has been the more valuable currency recently. However, even this is more a matter of recent years, as the CHF is considered the most popular safe haven among traders, and therefore its value has appreciated significantly practically since the start of the new millennium.<\/p>\n<\/a><\/p>\n
How are currency pairs quoted?<\/h2>\n
Clearly defined order<\/h2>\n