When Forex trading, currencies are always quoted and traded in pairs, such as USD/EUR. In every foreign exchange transaction, you are buying one currency and selling another. The first listed, on the left of the slash (“/”), is known as the base currency (in this example, the United States Dollar), while the second one listed, on the right of the slash (“/”), is called the counter or quote currency (in this example, the Euro).
- When buying, the exchange rate tells you how much you have to pay in units of the quote currency to buy one unit of the base currency. For example, you may have to pay 0.918400147 EURO to buy 1 USD.
- When selling, the exchange rate tells you how many units of the quote currency you get for selling one unit of the base currency. In the example above, you will receive 1.09310012 U.S. dollars when you sell 1 Euro.
The base currency is the “basis” for the buy or the sell. If you buy USD/EUR this simply means that you are buying the base currency and simultaneously selling the quote currency. Pragmatically speaking, “buy EUR, sell USD.”
If you believe the base currency will gain value (appreciate) relative to the quote currency, you would buy the pair. Conversely, if you think the base currency will lose value (depreciate) relative to the quote currency, you would sell the pair.