Quote Currency
Quick Definition
The second currency in a currency pair, representing the price in terms of how many units are needed to purchase one unit of the base currency.
What Is Quote Currency?
The quote currency (also called the counter currency or secondary currency) is the second currency listed in a forex pair. In EUR/USD, the U.S. dollar (USD) is the quote currency; in GBP/JPY, the Japanese yen (JPY) is the quote currency. The exchange rate tells you how many units of the quote currency you need to buy one unit of the base currency.
The quote currency is fundamentally important because profits and losses are calculated in the quote currency before being converted to the trader's account currency. When trading EUR/USD, gains and losses are denominated in U.S. dollars (the quote currency). When trading EUR/GBP, they are denominated in British pounds.
This has practical implications for pip value calculations. When the quote currency is USD (as in EUR/USD, GBP/USD, AUD/USD), the pip value for a standard lot is straightforward: $10 per pip. However, when the quote currency is not USD (as in EUR/GBP or USD/JPY), the pip value must be converted to the trader's account currency using the current exchange rate, which means the dollar value of a pip fluctuates.
The relationship between base and quote currencies determines how to interpret price movements:
- If EUR/USD rises, the euro (base) is strengthening and the dollar (quote) is weakening
- If EUR/USD falls, the euro (base) is weakening and the dollar (quote) is strengthening
- A rising exchange rate always means the base currency is gaining value relative to the quote currency
For traders whose account is denominated in a currency different from the quote currency of the pair they are trading, currency conversion of profits and losses occurs automatically at the prevailing exchange rate when the position is closed. This introduces an additional, often small, layer of currency risk.
Quote Currency Example
- 1In USD/JPY at 150.25, the Japanese yen is the quote currency, meaning it takes 150.25 yen to purchase one U.S. dollar.
- 2A trader with a EUR-denominated account trading GBP/USD will have their profit converted from USD (the quote currency) to EUR when the position is closed.
Related Terms
Base Currency
The first currency listed in a currency pair, representing the unit being bought or sold, with the exchange rate indicating how much of the quote currency is needed to purchase one unit of it.
Currency Pair
A quotation of two different currencies where one is expressed in terms of the other, forming the basis of all forex trading.
Pip (Forex)
The smallest standard unit of price movement in a currency pair, typically equal to 0.0001 for most pairs or 0.01 for yen-denominated pairs.
Exchange Rate
The price of one currency expressed in terms of another, determining how much of one currency is needed to purchase a unit of another.
Major Pairs
The most heavily traded currency pairs in the forex market, all of which include the U.S. dollar paired with another major global currency.
Forex (Foreign Exchange)
The global decentralized market where currencies are traded against one another, operating 24 hours a day across major financial centers.
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