What is Quote Currency?

The quote currency, commonly known as "counter currency," is the second currency in both a direct and indirect currency pair and is used to determine the value of the base currency. In a direct quote, the quote currency is the foreign currency, while in an indirect quote, the quote currency is the domestic currency. Quote currency is also referred to as the "secondary currency."

Key Takeaways

  • The quote currency, commonly known as "counter currency," is the second currency in both a direct and indirect currency pair and is used to value the base currency.
  • In a direct quote, the quote currency is the foreign currency, while in an indirect quote, the quote currency is the domestic currency.
  • As the rate in a currency pair increases, the value of the quote currency is falling, whether the pair is direct or indirect.

Understanding Quote Currency

Understanding the quotation and pricing structure of currencies is essential for anyone wanting to trade currencies in the forex market. Market makers tend to trade specific currency pairs in set ways, either direct or indirect, which means understanding the quote currency is paramount. 

A currency pair's exchange rate reflects how much of the quote currency is needed to be sold/bought to buy/sell one unit of the base currency. As the rate in a currency pair increases, the value of the quote currency is falling, whether the pair is direct or indirect.

For example, the cross rate between the U.S. dollar and the Canadian dollar is denoted as USD/CAD and is a direct quote. This means that the CAD is the quote currency, while the USD is the base currency. The CAD is used as a reference to determine the value of one USD. From a U.S.-centric point of view, the CAD is the foreign currency.

On the other hand, the EUR/USD denotes the cross rate between the euro and the U.S. dollar and is an indirect quote. This means that the EUR is the base currency and the USD is the quote currency. Here, the USD is the domestic currency and determines the value of one EUR.