Base currency explained
In trading the term base currency has two main definitions:
- The base currency is the first currency quoted in a forex pair: the two currencies that investors use to trade forex.
- The accounting currency used by banks and other businesses, which is usually the domestic currency of the country the company is operating in.
When buying (or going long on) a currency pair with IG, the base currency is the single unit being bought. It is also known as the primary currency.
The second currency in the pair is known as the quote (or the counter currency), and represents the amount of that particular currency needed to buy a single unit of the base currency. As such, a long forex trade will involve buying the base currency while selling the quote currency.
For instance, when trading EUR/USD, the euro is the base currency and the US dollar is the quote. If it is trading at 1.0502, then 1.0502 dollars would be needed to buy a single euro.