What is a quoted currency – Forex description
Have you heard about quoted currencies and have you always wondered what it is? In the world of cryptocurrencies, there seem to be many new currencies that have not yet been discovered and investigated. However, only a few are in the spotlight and gather a dedicated community.
One of these popularity that has caught our attention is the quote currency.Well known as Counter currency, Refers to the second currency in both direct and indirect currency pairs. It is used to settle the value of the base currency.
It is interesting to note that in direct estimates it is considered foreign currency. On the other hand, in indirect estimates, this particular currency represents the domestic currency.
For listing, once the exchange rate is estimated, it will be listed after the base currency of the pair. It is possible to determine the amount of quoted currency required to sell to buy one unit of the base currency or the first currency.
Currency pairs and exchange rates
In order to successfully trade currencies in the market, it is important to have at least a basic knowledge of the quoted currencies. It goes without saying that market makers are always keen to trade a particular currency pair in a certain way, either directly or indirectly. That means it is imperative to learn everything there to know about it.
For those who want to know what the exchange rate of a currency pair reflects, the answer is very simple. This reflects how many counter currencies you need to buy and sell in order to buy and sell one unit of the base currency.
For example, an increase in the rate of a currency pair means that the value of the pair, whether indirect or direct, decreases.
Euro and US Dollar – Example
Let’s look at another example. Imagine a cross rate between the euro and the US dollar, EUR / USD, or eurousd. Since it shows the cross rate of the euro and the US dollar, we are discussing the indirect market.
In this example, we have a base currency and an estimated currency. The US dollar is an estimate and the euro is the base currency. The US dollar represents the domestic currency and determines the value of 1 euro.
GBP / USD Currency Pairs-Example
For example, if GBP / USD is 1,5000, the price of £ 1 is $ 1.5000. If the value of the base currency, the pound sterling, rises, or if the estimated currency, the pound sterling, falls, the amount of dollars required to buy one pound sterling increases.
On the other hand, if the value of the base currency goes down or the market currency goes up, the opposite effect will occur.
USD and CAD Cross Rate-Example
As for the cross rate of US dollar and Canadian dollar, it is expressed in USD / CAD, and you can see that it directly represents the market price. For those who don’t know what that means yet, CAD is the quote and USD is the base currency.
The Canadian dollar is used as a reference to settle the value of US $ 1. From a US perspective, CAD stands for foreign currency.
What are the factors that influence currency pairs?
To better understand the market currency, it is essential to know which factors influence the currency pair. Some of these factors include not only economic activity, but also monetary and fiscal policies achieved by interest rates and central banks.
We are aware of the fact that the US dollar and the euro represent important currencies. These currencies are more likely to be the base currencies than the estimated currencies of the currency pair. This is a widespread situation, especially in exotic currency transactions.
The most popular currency pairs traded in 2021
- EUR / USD
- GBP / USD
- EUR / GBP
- USD / CHF
- USD / JPY
As you can see from the example above, the first pair of these pairs represents the base currency and the second pair represents the estimated currency.
Best example of market currency
Imagine a particular trader aiming to buy £ 400 using the US dollar currency. In this case, transactions using GBP / USD currency pairs are included. To execute a transaction, you need to know how much you need to sell the quoted currency, the US dollar, in order to get £ 400.
The exchange rate of the pair was 1,4103 at the end of the trading day of June 3, 2021. Therefore, it costs a trader $ 1.4103 to buy £ 1. To complete the transaction on the same day, the trader had to sell over 564.12 units to get 400 units of base currency. The opposite situation is £ 400 = (400 x 1.4103) for $ 564.12.
So what did you learn from this article that you need to remember? As a rigorous and dedicated trader aspiring to create a successful long-term trading career, what are the essences you need to keep in mind? The important points are as follows.
- In Forex market, Currency unit price is an estimate as a currency pair.
- A quote, or counter currency, represents the second currency, both in direct and indirect pairs.
- Used to evaluate the base currency.
- The base currency, called the trading currency, is the first currency of the pair.
- The exchange rate of one particular currency pair reflects the amount of estimated currency required to buy or sell one unit of the base currency.
- As the currency rate goes up, the value of the estimated currency goes down.
- It is a foreign currency quoted directly.
- In indirect quotes, the quoted currency represents the domestic currency.
- If a person wants to buy a currency pair, he sells counter currency.
- If a trader shortens a currency pair, he buys a counter currency.
What is a quoted currency – Forex description
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