How to Read a Currency Pair: Base, Quote Currency and Pips
Every currency pair is two currencies and the price of one expressed in units of the other. Without understanding the structure of a quote you cannot size a position or a stop correctly, so this is the first skill worth bringing to automatic.
Base and Quote Currency
In EUR/USD the first currency (EUR) is the base and the second (USD) is the quote. The value of the quote shows how much of the quote currency is needed to buy one unit of the base. EUR/USD = 1.0850 means one euro buys 1.0850 dollars.
When you buy a pair, you are buying the base currency with the quote currency and betting the base will strengthen. Selling is the opposite bet. The direction of a trade is always described relative to the base currency.
| Element | Meaning |
|---|---|
| Base currency | EUR (the one you buy/sell) |
| Quote currency | USD (the price is expressed in it) |
| Meaning of the number | 1.0850 USD per 1 EUR |
| Pip | 4th decimal place (0.0001) |
| A 10-pip rise | 1.0850 → 1.0860 |
What a Pip Is and How to Measure a Move
A pip is the smallest step in price: the fourth decimal place in most pairs and the second decimal place in yen pairs. A move in EUR/USD from 1.0850 to 1.0860 is 10 pips. The monetary value of a pip depends on the size of the position, and it is through that value that profit, loss and risk per trade are calculated.
- A bet on the base currency rising
- Profit if the pair goes up
- Example: buy EUR/USD expecting the euro to strengthen
- A bet on the base currency falling
- Profit if the pair goes down
- Example: sell EUR/USD expecting the euro to weaken
In brief
- The first currency of a pair is the base, the second is the quote.
- A quote is the price of one unit of the base currency in the quote currency.
- A pip is the 4th decimal place (2nd for yen pairs); moves are measured in pips.
- The value of a pip depends on position size — risk per trade is calculated through it.