What Is a Currency Pair?
A currency pair is the quotation of two different currencies, with the value of one currency being quoted against the other. The first listed currency of a currency pair is the base currency, and the second is the quote currency.
Currency pairs compare the value of one currency to another—the base currency (or the first one) versus the second or the quote currency. It indicates how much of the quote currency is needed to purchase one unit of the base currency. An ISO currency code identifies coins or the three-letter alphabetic code associated with the international market. So, for the U.S. dollar, the ISO code would be USD.
Each currency in the pair is listed as a three-letter code.
The first two letters identify the country's name, and the third letter identifies the name of that country’s currency, usually the first letter of the currency’s name.
For example, USD stands for the US dollar and CAD for the Canadian dollar.
In the USD/CAD pair, you are buying the U.S. dollar by selling the Canadian dollar.
The first currency listed in a currency pair is the base currency, and the second is the quote currency.
The quote currency is also known as the “counter currency.”
Currency pairs compare the value of one currency to another. It indicates how much of the quote currency is needed to purchase one unit of the base currency.
The price of a currency pair is how much one unit of the base currency is worth in the quote currency.
For example, for “EUR/USD,” EUR is the base currency, and USD is the quote currency.
If EUR/USD is trading at 1.0950, then one euro is worth 1.0950 U.S. dollars.
If the euro appreciates against the dollar, then a single euro will be worth more dollars, and the pair’s price will rise.
If the euro depreciates against the dollar, the pair’s price will fall.
If you think that the base currency is likely to strengthen against the quote currency, you can enter a long position (“buy the pair”).
If you think it will weaken, you can enter a short(“sell the pair”).