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Market Foundations + Forex Mechanics · The Basics

Currency pairs explained

Identify base and quote currencies in any forex pair.

3 min read+25 XPLesson 2 of 110
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Market Foundations + Forex Mechanics

The Basics

Lesson 2 of 1102%
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Lesson 2 of 110Market Foundations + Forex MechanicsThe Basics

Today's tiny win: make one idea click.

Identify base and quote currencies in any forex pair.

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Every pair is a comparison

Forex means foreign exchange: trading one currency against another. The pair name tells you the comparison. In EUR/USD, EUR is the base currency, which means it is the thing being priced. USD is the quote currency, which means it is the currency used to state the price. EUR/USD at 1.0850 means 1 euro costs 1.0850 U.S. dollars.

Wick shows a euro coin swapping for 1.0850 dollars, teaching that the first currency is the base being priced and the second is the quote used to price it.1 euro$1.0850=Base first, quote second
Wick saysEUR/USD at 1.0850 means 1 euro costs 1.0850 U.S. dollars.

Buying EUR/USD means you are betting the euro strengthens against the dollar. Selling EUR/USD means you are betting the euro weakens against the dollar. You are never trading a currency in isolation. You are always trading a relationship.

A green card reads 1 euro costs 1.0850 dollars and a coral card reads 1 dollar costs 1.0850 euros, teaching that reading the pair backwards gives the wrong meaning.Right1 euro costs1.0850 dollarsFlipped1 dollar costs1.0850 euros
Wick saysNever flip the pair. The price is how much quote currency buys one base unit.

Pairs come in categories. Majors include the U.S. dollar, like EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, NZD/USD, and USD/CAD. They usually have the tightest spreads. Crosses do not include USD, like EUR/GBP or GBP/JPY. Exotics pair a major currency with an emerging-market currency, like USD/ZAR or USD/TRY, and tend to have wider spreads and sharper movement. Gold works the same way in XAUUSD: XAU is gold, USD is the dollar. BTC/USD uses the same base-and-quote logic.

Three cards compare majors with the dollar, crosses without it, and exotics like USD/ZAR with wider spreads, showing the three families of currency pairs.MajorsHave USD,likeEUR/USDCrossesNo USD,likeEUR/GBPExoticsLikeUSD/ZAR,widerspreads
Wick saysMajors include the dollar, crosses skip it, and exotics often cost more to trade.

Recap: first currency is base, second currency is quote. The price tells you how much quote currency it takes to buy one unit of the base currency.

Knowledge check

Answer before moving on.

0 / 3 answered

1. If EUR/USD is quoted at 1.0850, what does that mean?

2. What are you betting if you buy EUR/USD?

3. Which pair is a cross rather than a major?

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