Forex Trading Course: Chapter 5: Quote Currency: Base Currency/Counter Currency

Direct and Indirect Quotes

Every local currency can be quoted directly or indirectly against other currencies (most of the time the US Dollar):

DIRECT QUOTATION:

Amount of local currency that is needed to buy one unit of the foreign currency (most commonly the USD)

INDIRECT QUOTATION:

Amount of local currency that is to be received when one unit of the foreign currency is sold.

Ok, now imagine your local currency is the EUR, in this case the quotation scheme against the US Dollar would be:

Direct Quotation: USD/EUR – How many Euros to get one US Dollar, and, Indirect Quotation: EUR/USD – How many US Dollars to get one Euro

For the sake of simplicity, most of the time the US Dollar is called the “Foreign Currency”, so for the majors we have the following:

Direct Currencies

 USD/JPY
 USD/CAD
 USD/CHF

Indirect Currencies

 EUR/USD
 GBP/USD
 AUD/USD

Counter and base (or quote) currency

The first currency of the pair is always called base currency. The second currency is called counter currency (or quote currency). Currency pair quotes are always expressed in units of the counter currency to get one unit of the base currency.

EUR/USD = Base Currency/Counter Currency

This is how many USD are required to get one EUR

 If the EUR/USD quote is 1.2520, then it requires 1.2520 USD to get one EUR…and the same goes for other currency pairs.
 If the USD/JPY quote is at 110.05, it requires 110.05 JPY to get one USD

TIP: The EUR is always the dominant base currency against all other currencies. All currency pairs against the EUR are identified as EUR/USD, EUR/JPY, EUR/CHF…The next in the hierarchy is the GBP, which is always the base currency, but against the EUR (EUR/GBP).