What is the base currency?
The base currency in forex refers to the first currency listed in a currency pair. It is the currency against which all other currencies in the pair are measured. The value of the base currency is always equal to 1.
For example, in the currency pair EUR/USD, the Euro (EUR) is the base currency. The exchange rate between the base currency and the counter currency determines the value of the counter currency. The base currency is crucial in forex trading as it helps determine the profitability of trades and helps traders analyze the market.
Example of a base currency
An example of a base currency in forex is the United States Dollar (USD) in the currency pair USD/EUR. In this pair, the USD is the base currency, and the EUR (Euro) is the quote currency. The exchange rate indicates how many units of the quote currency are required to buy one unit of the base currency.
For example, if the exchange rate is 1.20, it means that 1.20 Euros are needed to buy 1 US Dollar. The base currency acts as a benchmark for valuing other currencies in the forex market.