In foreign exchange market transactions, the exchange rate is expressed in currency pairs . The most important concept to understand this quote is the "relative value of the two currencies." For example, in the EUR/USD currency pair, the first half of the EUR is called the base currency, and the second half of the USD is called the quote currency.
The base currency is the currency in the quote, which represents how much of the quote currency can be converted for each unit of the base currency. For example, the current price of EUR/USD is 1.2, which means that each 1 Euro can be converted into 1.2 US dollars.
The quote currency is also called the settlement currency, target currency or counter currency. In the quote, it represents how much quote currency is currently needed to exchange for 1 base currency. For example, the current price of USD/JPY is 104.8, which means 104.8 yen can be exchanged for 1 US dollar.
International foreign exchange quotations are mainly based on the US dollar. In the foreign exchange market, for currency pairs that include the US dollar, the quotation methods can be divided into direct quotation (American terms currency quotation) and indirect quotation (European terms).
The direct quotation method represents how many U.S. dollars can be exchanged for 1 unit of foreign currency, with the U.S. dollar being the quote currency. Currently, only the British pound, the euro, the Australian dollar and the New Zealand dollar use this quotation method in the international market, namely GBP/USD, EUR/USD, AUD/USD and NZD/USD. For example, GBP/USD=1.33 means 1 British pound = 1.33 U.S. dollars.
The indirect quotation method represents how much foreign currency 1 unit of US dollar can be exchanged for, i.e. USD/CAD, USD/JPY, USD/CNY, etc., with the US dollar being the base currency. For example, USD/CAD=1.41, 1 US dollar = 1.41 Canadian dollars.
Even though they are not commonly used in transactions, there are also quotes such as USD/EUR and JPY/USD in the market, which is also convenient for people in different countries to check and calculate the exchange rate of their own currencies. At the same time, when studying the rise and fall of exchange rates, it is necessary to first clarify whether the currency pair is directly quoted or indirectly quoted. For example, when the USD/CNY exchange rate falls, it means that the US dollar falls or the RMB rises.
There are two prices in the exchange rate quotation, the selling price and the buying price, and the concepts are easy to confuse. For example, if USD/JPY is 103.75 / 103.78, please note that the buying price is on the right , which means that you can buy the base currency USD at 103.78 and sell 103.78 yen . The selling price is on the left , which means that you can sell the base currency USD at 103.75 and get 103.75 yen in return. However, the quotes seen in the bank will reverse the buying and selling, and will be marked as buying price 103.75 / selling price 103.78 , which means that the bank sells USD at 103.78 yen and allows customers to buy USD, and buys USD at 103.75 yen and allows customers to sell USD.
Further reading: Major currencies and currency pairs in foreign exchange trading
All financial products traded on margin carry a high degree of risk to your capital. They are not suited to all investors and you can lose more than your initial deposit. Please ensure that you fully understand the risks involved, and seek independent advice if necessary.