Currency Pairs and the Foreign Exchange Market
A currency pair is a foreign exchange market quotation of the relative value of one currency unit against a unit of another currency. In the foreign exchange market, currency trades are made in pairs as one currency is bought and another is sold. The value of each currency is relative as it is determined by comparison to a second currency. In a currency pair, the first currency is known as the “base currency” and the second is the “quote currency”. So a currency pair tells us how much quote currency it will take to purchase a unit of the base currency.
Usually in a currency pair, the more expensive currency is shown first and a currency pairs quote goes to four decimal places. The last decimal place, known as a “pip (price interest point) represents the smallest move possible for the currency pair. As an example, EUR/USD 1.3314 tells us that 1.3314 U.S. Dollars are required to buy 1 Euro.
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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.
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