In the foreign exchange market, or forex market, currencies normally are traded in pairs. The first currency listed is referred to as the base currency, and the second one in the pair is known as the quote currency. The quote currency also might be known as the secondary currency or counter currency. For example, in a currency pair such as the Euro (EUR) versus the US Dollar (USD), the pair will usually be quoted as EUR/USD. In this pair, the EUR is the base currency, and the USD is the quote currency.
The quotation price of a currency pair shows the relative value of the quote currency against the base currency in terms of one unit. For example, if EUR/USD is trading at 1.4164, it means that the exchange rate for €1 EUR is equal to $1.4164 USD. That is, to buy €1 EUR, an individual will need to exchange it for $1.4164 USD, and at this rate, one could get about €0.7060 EUR with $1 USD. When observing forex price fluctuations using charts or simple quotes with no charts, one will see the price of the currency pair depreciate when the quote currency gets stronger compared with the base currency. Conversely, when the quote currency declines in value in relation to the base currency, the quotation price of the pair will rise.
Most currencies in the world are traded on exchanges, and the currencies are quoted using codes standardized by an institution called the International Organization for Standardization (ISO). For instance, the ISO has set the code for the US Dollar as USD, the code for the Euro as EUR and the code for the Japanese Yen as JPY, and all other currencies have their own codes.
The order in which currencies are quoted on an exchange is fairly standardized. For example, the EUR versus the USD pair will always be quoted as EUR/USD in the forex market, but in some cases, the order might be reversed for various reasons. Instead of being quoted as EUR/USD, for example, this pair might be quoted as USD/EUR. A high percentage of currency trades involve the US Dollar, and a pair that does not involve the US Dollar is called a cross currency pair.
In what is called a direct quote, the quote currency is the domestic currency stated as a unit of the foreign currency. For instance, in any one of the European Union (EU) nations, a direct quote for the USD would be stated as €0.7060 EUR = $1 USD. On the other hand, in the U.S., a direct quote for the EUR would be $1 USD = €0.7060 EUR. In an indirect quote the order, would be reversed, that is, in the U.S., the quote would be €0.7060 EUR = $1 USD, and in the EU, it would be quoted as $1 USD = €0.7060 EUR.
