Currency Pair

Currency Pair

The quotation and pricing structure of the currencies traded in the forex market: the value of a currency is determined by its comparison to another currency. The first currency of a currency pair is called the "base currency", and the second currency is called the "quote currency". The currency pair shows how much of the base currency can be purchased with one unit of the quote currency.

Notes:

All forex trades involve the simultaneous buying of one currency and the selling of another, but the currency pair itself can be thought of as a single unit, an instrument, that is bought or sold. If you buy a currency pair, you buy the base currency and sell the quote currency. The bid (buy price) represents how much of the base currency you get for one unit of the quote currency. Conversely, when you sell the currency pair, you sell the base currency and buy the quote currency. The ask (sell price) for the currency pair represents how much it will cost in base currency for one unit of quote currency.

For example, if the USD/EUR currency pair is quoted as being 1.5 USD/EUR and you purchase the pair, this means that for every one euro that you pay, you purchase (receive) $1.50. If you sold the currency pair, you would receive one euro for every $1.50 you sold. The inverse of the currency quote is EUR/USD, and the corresponding price would be 0.667 EUR/USD, meaning that one dollar would buy 0.667 euros.

See also: Base Currency, Currency Convertibility, Currency, Exchange Rate, Forex - FX, Interest Rate Parity, Pip, Quote Currency