A:

In a currency pair, the first currency in the pair is called the base currency and the second is called the quote currency.

Currency pairs can be separated into two types, direct and indirect. In a direct quote the domestic currency is the base currency, while the foreign currency is the quote currency. An indirect quote is just the opposite: the foreign currency is the base currency and the domestic currency is the quote currency. For an American trader, the EUR/USD quote is an indirect one. So, for example, a quote of 0.80 EUR/USD would mean that 1 EUR it would cost you $0.80 USD. 

Although nearly 89% of the currency trades made around the world involve the U.S. dollar, the EUR/USD currency pair is always quoted indirectly. The reason for this is mostly convention. A EUR/USD quote could easily be shown as USD/EUR by making a simple calculation, but there are no strict rules that determine whether a currency pair is shown directly or indirectly. The way currency pairs are quoted can also vary depending on the country in which the trader lives - most countries use direct quotes, while the U.K., Australia, New Zealand and Canada prefer indirect quotes.

To learn more, see Forces Behind Exchange Rates, Common Questions About Currency Trading and Make The Currency Cross Your Boss.

RELATED FAQS
  1. Why is currency always quoted in pairs?

    When reading currency quotes, you have probably noticed that there is only a single quote for a pair of currencies. Currency ... Read Answer >>
  2. What is the value of one pip and why are they different between currency pairs?

    In forex markets, currency trading is done on some of the world's most powerful currencies. The major currencies traded are ... Read Answer >>
  3. What are the most common currency pairs traded in the forex market?

    There are many official currencies that are used all over the world, but there only a handful of currencies that are traded ... Read Answer >>
  4. What is foreign exchange?

    Foreign exchange, or Forex, is the conversion of one country's currency into that of another. In a free economy, a country's ... Read Answer >>
  5. How is the value of a pip determined?

    Learn how the pip is used in the pricing of a currency pair in forex trading, and see how the foreign exchange market is ... Read Answer >>
Related Articles
  1. Trading

    What is an Indirect Quote?

    An indirect quote expresses the amount of foreign currency required to buy or sell one unit of the domestic currency in the foreign exchange markets.
  2. Trading

    What Makes the EUR/USD A Risky Trade Now?

    What are the current risks of trading the EUR/USD pair? The Fed may raise interest rates this summer and the ECB has begun a quanitative easing program.
  3. Trading

    How Do You Make Money Trading Money?

    Making money in the foreign exchange market is a speculative process. You are betting that the value of one currency will increase relative to another.
  4. Trading

    Drastic Currency Changes: What's The Cause?

    Currency fluctuations often defy logic. Learn the trends and factors that result in these movements.
  5. Trading

    What is a Direct Quote?

    A direct quote uses variable amounts of the home country’s currency to compare to a fixed amount of a foreign currency.
  6. Trading

    Popular Forex Currencies

    Learn about the most traded currencies and the strategies used to trade them.
  7. Trading

    4 Of The Most Popular Traded Currencies

    Every day, trillions of dollars trade in the forex market. Here are a few of the most popular currencies, and some characteristics for each.
RELATED TERMS
  1. Quote Currency

    The quote currency is the second currency in both a direct and ...
  2. Base Currency

    The first currency quoted in a currency pair on forex. It is ...
  3. Exchange Rate

    An exchange rate is the price of a nation’s currency in terms ...
  4. Cross Rate

    The currency exchange rate between two currencies, both of which ...
  5. Open Position Ratio

    The percentage of open positions held for major currency pairs ...
  6. European Terms

    A foreign exchange quoting convention where the domestic currency ...
Hot Definitions
  1. Short Covering

    Short covering is buying back borrowed securities in order to close an open short position.
  2. Covariance

    A measure of the degree to which returns on two risky assets move in tandem. A positive covariance means that asset returns ...
  3. Liquid Asset

    An asset that can be converted into cash quickly and with minimal impact to the price received. Liquid assets are generally ...
  4. Nostro Account

    A bank account held in a foreign country by a domestic bank, denominated in the currency of that country. Nostro accounts ...
  5. Retirement Planning

    Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve ...
  6. Drawdown

    The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted ...
Trading Center