British Pound / U.S. DollarEducation
The Base & Quote Currency - What Are They?
In forex the base currency is the first currency mentioned in the symbol (the first 3 letters). The quote currency is the second currency mentioned in the symbol (last 3 letters). The base currency is being given a 'quote' in the quote currency quite simply, saying that if you hold one base currency you will receive x amount of quote currency.
If you take a buy trade (long) then you are effectively purchasing the base currency, expecting it to rise in value against the quote currency. Likewise if you take a sell trade (short) you are effectively selling the base currency into the quote currency, anticipating that the base currency will fall in value against the quote currency.
With CFD's you don't need to own either of the currencies to trade them, as the contract makes you liable for the value of change of the forex rate based upon the contract size (lot size). The broker will calculate this value, convert the amount to your forex trading account's base currency, and issue you with the profit or loss.
For example, lets say your account is in GBP and you buy one contract (1.00 lots) of EURUSD. The EUR appreciates against the USD by 10 pips, and your profit is 100 USD. The broker then converts this to GBP using the USD/GBP rate (currently 0.7040), making your profit 70.4 GBP! The broker issues this profit into your trading account.
If you take a buy trade (long) then you are effectively purchasing the base currency, expecting it to rise in value against the quote currency. Likewise if you take a sell trade (short) you are effectively selling the base currency into the quote currency, anticipating that the base currency will fall in value against the quote currency.
With CFD's you don't need to own either of the currencies to trade them, as the contract makes you liable for the value of change of the forex rate based upon the contract size (lot size). The broker will calculate this value, convert the amount to your forex trading account's base currency, and issue you with the profit or loss.
For example, lets say your account is in GBP and you buy one contract (1.00 lots) of EURUSD. The EUR appreciates against the USD by 10 pips, and your profit is 100 USD. The broker then converts this to GBP using the USD/GBP rate (currently 0.7040), making your profit 70.4 GBP! The broker issues this profit into your trading account.
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