What Is Base Currency?

What is Base Currency? In the Forex currency market all prices for foreign and domestic currencies are quoted in pairs. In any pairing there exists the base currency and the quote currency. The base currency is always the price quoted first and equals one unit of measure. The second price in base currency quotes is the quote price. In most situations the base currency will be the domestic currency in the place where the quote is being made, but it is not always the case.

Base Currency Explained

In the Forex currency market, currency prices fluctuate and change often very much, in short time, and with little or no warning. The reason behind these base currency quotes is not always easily explained but is typically based on supply and demand of a given currency, economic situations or events in a given currencies nation of issuance, or credit ratings applied to a nation signaling a positive or negative credit situation. All these factors affect the many currencies traded on the Forex currency market making it an oftentimes volatile investment market. In understanding what one sees when they check the market for currency quotes, the base currency must be very well understood. In the following example the base currency is the U.S. Dollar (USD) and the quote price is the Japanese Yen:

USD/JPY 87.601

The above quote, the same type a currency trader will see, is saying that for every unit or single US Dollar, the base currency, you will need 87.601 Japanese Yen to purchase it. The prices quoted in the Forex currency market will typically include the above average which is derived from the best or highest bid price and the lowest ask price. These quotes are only valid for the moment they are quoted and continually change during the 24 hour, 5 day Forex currency market cycle.

Related posts:

1. Currency Pair Quotes
2. What Is A Quote?
3. What Is A Currency Change Rate?
4. What Are Forex Charts?
5. What Is A Rate?