In the Forex market, traders hope to generate profits by speculating on the value of one currency compared to another. Currencies are always traded in pairs in many combinations, thus offering opportunities to profit from exchange rates between various global currencies.
The exchange rate prices offered to traders are referred to as Quotes.
A quote comprises of:
- Base Currency: This is the first currency in the pair. The exchange rate listed represents how much of the second currency one unit of the Base currency will be able to purchase.
- Counter Currency: This is the second currency in the currency pair.
For example, suppose the buy quote (meaning the price traders can buy at) on EUR/AUD is 1.44000. This means that 1 Euro (the base currency) can purchase 1.44000 Australian dollars (the second currency, or counter currency). Likewise, if we saw a GBP/JPY price of 171.158, this would tell us that 1 British pound (GBP) would purchase 171.158 Japanese yen (JPY).
When the exchange rate is rising, it tells us that the base currency is rising relative to the counter currency. When the exchange rate is falling, the opposite is true: the counter currency is rising relative to the base currency.
The chart below illustrates.
Practice trading on a free ThinkForex demo account to see these exchange rates move. Or to continue your education in forex trading, see our guides.