How are Forex Currency Pairs Written?
Here we can see the different parts that make up a forex currency pair.
The first currency listed in the pair is known as the base currency and the second currency listed in the pair is what’s known as the quote currency.
Have you ever noticed that a currency pair is always written in a set order? For example, EUR/USD is always written with the EUR as the base currency and not the other way around. This is due to standards that have been universally set, whereby each currency has a ranking relative to one another. If one currency is ranked higher than another, when quoted as a currency pair it will receive base currency status.
The universally accepted ranking order is as follows:
The rankings were established according to the relative values of the currencies at the time, but new currencies such as the Euro were subjectively inserted.
When a forex currency pair is displayed as a quote like the example above, the price shows how much of the quote currency (in this case, the USD) is required to buy 1 unit of the base currency (in this case, the EUR). For example, EUR/USD at 1.2000 means that 1 Euro can buy 1.2000 US Dollars.
In a forex currency quote, the first number is what is called the bid price, or the price at which you are able to buy the currency pair. The second number is called the ask price, and is the price at which you can sell the currency pair. The difference between the bid and ask price is what is known as the spread and is the price that you must pay to enter your trade.