Base Currency
The first currency in a pair — the one being bought or sold.
Also called: first currency
Written by Javier Sánchez Ros
In plain language
In EUR/USD, the euro is the base currency. The quote tells you how many dollars one euro costs.
Position size in forex is denominated in units of the base currency. A standard lot of EUR/USD is 100,000 euros.
When the pair rises, the base currency is strengthening relative to the quote currency.
Worked through
One standard lot of GBP/USD with the pair at 1.2700
- Base currency
- GBP
- Position size
- £100,000
- Notional value
- $127,000
- If the pair moves to 1.2800
- $128,000
A standard lot is 100,000 units of the base currency, so this position is a hundred thousand pounds — not a hundred thousand dollars. Its dollar value depends on the rate, and at 1.2700 that is $127,000.
The distinction is easy to skip and expensive to skip. A trader with a $10,000 account who reads "100,000" as dollars thinks they are running ten times leverage. They are running 12.7 times, and the margin requirement will be calculated on the larger figure.
It also tells you what you actually own. Long GBP/USD is long pounds, so the position gains when the pound strengthens for any reason at all — including reasons that have nothing to do with the dollar chart you were watching.
Why it matters
Lot sizes are measured in base currency units, so the base currency determines what your position size actually represents.
Common mistakes
- Mixing up which currency you are actually long.
- Assuming position value is in your account currency when it is in the base currency.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
The second currency in a pair — the one the price is expressed in.
Two currencies quoted against each other, showing how much of one buys the other.
The standardized unit of trade size in forex.
How much one pip of movement is worth in your account currency, given your position size.
The most heavily traded currency pairs, all involving the US dollar.