What Is a Quote Currency?
Let me explain to you what a quote currency is in the world of foreign exchange, or Forex. It's the second currency listed in both direct and indirect currency pairs, also called the counter currency. You use it to figure out the value of the base currency, which is the first one in the pair. When you see exchange rates quoted, the quote currency comes after the base.
Key Takeaways
Here's what you need to remember: the quote currency is always the second in the pair and values the base. Quotes tell you how many units of the quote currency you'll exchange for one unit of the base. In a direct quote, it's the foreign currency; in an indirect one, it's the domestic.
Trading Currencies
If you're looking to trade currencies in the forex market, you must understand how quotations and pricing work. Market makers deal in specific pairs, either directly or indirectly. In direct quotes, the quote is foreign; in indirect, it's domestic. You can calculate how much quote currency to sell for one unit of base. As the pair's rate rises, the quote currency's value drops, no matter the type. Most USD pairs have USD as base; if not, it's reciprocal. Currencies trade on the spot market based on price from supply, demand, interest rates, economic performance, geopolitics, and speculation.
Example
Suppose you want to buy £400 with U.S. dollars using the GBP/USD pair. You'd need to know how many USD, the quote currency, to sell for that. If the rate is 1.4103, it costs $1.4103 per £1. So, for £400, you'd sell $564.12, calculated as 400 times 1.4103.
Cross Rate
Most rates are against the USD, the reserve currency. But for direct exchanges between two foreign currencies without USD, you use cross rates. USD/CAD is a direct quote with CAD as quote and USD as base; CAD values the USD, and from a U.S. view, CAD is foreign. EUR/USD is indirect with EUR as base and USD as quote; USD values the EUR and is domestic here.
Currency Pairs
Currency pairs, involving base and quote, are influenced by economic activity, central bank policies, and interest rates. Majors like euro and USD tend to be base, especially with exotics.
Most Commonly Traded Currency Pairs in 2023
- EUR/USD (Euro/US Dollar)
- USD/JPY (US Dollar/Japanese Yen)
- GBP/USD (British Pound/US Dollar)
- AUD/USD (Australian Dollar/US Dollar)
- USD/CAD (US Dollar/Canadian Dollar)
- USD/CNY (US Dollar/Chinese Yuan)
- USD/CHF (US Dollar/Swiss Franc)
- EUR/JPY (Euro/Japanese Yen)
- EUR/GBP (Euro/British Pound)
- NZD/USD (New Zealand Dollar/US Dollar)
What Is Foreign Exchange (FOREX) Trading?
Forex trading means buying one currency while selling another to profit from the exchange.
When Is Currency Trading Conducted?
The FX market is OTC, setting global rates via an international network operating 24 hours a day.
What Agency Regulates Currency Trading?
In the U.S., the CFTC oversees commodities markets, including forex.
The Bottom Line
Currencies trade on FOREX, where the quote is the second in pairs to value the base. Take EUR/USD as the top pair; quotes show units of quote needed for one base unit.
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