Base currency
Family I · Instruments
Not to be confused with clusd currency pair, currency pair, znusd currency pair.
Base currency is the first currency in a currency pair and represents the unit that is being priced against the second currency, known as the quote currency. In the pair EUR/USD, EUR is the base currency, and the exchange rate indicates how much of the quote currency is needed to buy one unit of the base currency. The base currency is also the currency in which a forex position's size is denominated.[1]
Role in a currency pair
Every currency pair is written as base/quote. The base currency is the reference unit: a price of 1.2500 for GBP/USD means one British pound costs 1.2500 US dollars. Buying the pair means buying the base currency and selling the quote currency; selling the pair means the opposite.
In a standard lot of 100,000 units, the base currency amount is 100,000 units of the base. Profit or loss is calculated in the quote currency and then converted to the trader's account currency if different.
Worked example
Consider a trader who buys 0.5 lots of EUR/USD at 1.1000 and later closes at 1.1050. The base currency is EUR, and the quote currency is USD.
Base currency vs account currency
The base currency of a pair is not necessarily the same as the trader's account currency. If the account is denominated in a different currency, the profit or loss in the quote currency must be converted at the prevailing exchange rate. For example, a USD-denominated account trading EUR/GBP will have profits in GBP, which are then converted to USD.
Often confused with
- clusd currency pair
- A clusd currency pair is a synthetic or exotic pair combining a cryptocurrency or commodity with the US dollar, whereas the base currency is simply the first currency in any pair; the visible sign is the presence of a non-fiat ticker such as CL (crude oil) or a crypto symbol.
- currency pair
- A currency pair is the full quotation of two currencies, while the base currency is only the first component of that pair; the visible sign is that a currency pair always includes a slash and a second currency, whereas the base currency is a single currency code.
- znusd currency pair
- A znusd currency pair is a specific pair where ZN (a futures contract or synthetic instrument) is traded against USD, whereas the base currency is a general concept applicable to any pair; the visible sign is the ticker ZN as the first element, which is not a traditional fiat currency.
See also
References
- ↑ ISO 4217, the international standard that assigns each currency its three-letter code. The codes used in every pair quotation come from this standard, not from brokers.