Definition
Base CurrencyThe base currency is the first currency in a forex pair. The quote shows how much of the second currency is needed to buy one unit of it.
Example
In GBP/USD quoted at 1.2650, GBP is the base currency: one British pound costs 1.2650 US dollars.
In detail
A currency pair is written as BASE/QUOTE. The base currency is always fixed at one unit, and the price tells you its value in the quote currency. If EUR/USD is 1.0850, one euro is worth 1.0850 dollars.
When you buy a pair, you are buying the base currency and selling the quote currency. When you sell a pair, you are selling the base and buying the quote. So "long EUR/USD" is a view that the euro will strengthen against the dollar.
Why it matters
The base currency shapes several practical details:
- Position size. Lot sizes are measured in the base currency. One standard lot of EUR/USD is 100,000 euros, while one standard lot of USD/JPY is 100,000 US dollars.
- Margin. Because your exposure is denominated in the base currency, the margin your broker requires is calculated from the base amount and then converted to your account currency.
- Direction. If the pair rises, the base currency has strengthened. If it falls, the base has weakened (or the quote has strengthened).
Market conventions
The order of currencies is not random. Market convention ranks the euro first, then the British pound, Australian dollar, New Zealand dollar and US dollar, ahead of most others. That is why you see EUR/USD and GBP/USD, but USD/JPY and USD/CAD rather than the reverse.
Example
Assume AUD/USD is quoted at 0.6600 (illustrative). Buying 10,000 units (one mini lot) means buying 10,000 Australian dollars, which costs 10,000 × 0.6600 = 6,600 US dollars in notional value. If AUD/USD rises to 0.6650, the same 10,000 AUD are now worth 6,650 USD, a 50 USD gain before costs.
Learn more in the Base and Quote Currency lesson.
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Related terms
- Quote CurrencyThe quote currency is the second currency in a forex pair. Prices, pip values and profit or loss on that pair are all expressed in it.
- Currency PairA currency pair is the quotation of one currency against another, such as EUR/USD, showing how much of the second currency buys one unit of the first.
- LotA lot is a standardized trade size in forex. One standard lot is 100,000 units of the base currency; mini and micro lots are 10,000 and 1,000 units.
- PipA pip is the standard unit for measuring how much a currency pair's price changes: 0.0001 for most pairs and 0.01 for pairs quoted in Japanese yen.