Hi, I have a pretty basic question but one I couldn’t find the answer for in the school.
Take for example the currency pair GBP/USD. In the forex trading station I have, it lists this pair using the British pound as the base currency, and not the other way - USD/GBP. How come USD/GBP does not exist as a pair? Or another example, there is CAD/JPY, but not JPY/CAD.
So my question: If I want to trade in this currency pair, what difference does it make which one is the [B]base [/B]currency and which one the[B] quote [/B]currency? If it makes no difference, what is the significance of calling one base and the other quote?
I don’t remember the details of who chose the order and why, but for the sake of uniformity rules were set up to govern how the quotes are ordered.
For the majors EUR is always listed first, then it’s AUD, GPB, CAN, USD, CHF, and last is JPY (At least I think this is the right order). So just by looking at the order I know that CHF/JPY is the proper name of the pair, because CHF comes before JPY.
For your second question, it matters which is the base and which is the quote because you need to know what the exchange rate of the pair means. If GBP/JPY is trading at 135.00 does that mean there are 135 yen in a pound, or 135 pounds in a yen? The answer is that the rate is always in the quote currency, so a [B]base [/B]of 1 pound is worth 135.00 yen.
That’s the origin of the name “quote currency.” It’s the currency the quote is given in.
