Understanding how currency pairs are quoted is one of the first steps in learning forex. Every price you see on a chart is an expression of two currencies: the base currency and the quote currency. The quote currency is the second currency in the pair and is essential because it tells you how much of that currency you need to buy one unit of the base currency. This article explains what the quote currency is, how it affects pricing, profit and loss, pip values and trade sizing, and some practical examples to make the idea concrete.
How currency pairs are written and read
Forex prices are always shown as currency pairs, for example EUR/USD or USD/JPY. The first currency in the pair is the base currency; the second is the quote currency. When you see EUR/USD = 1.1000, that number means one euro (the base) is worth 1.10 US dollars (the quote). If the rate moves higher, one euro buys more dollars; if it moves lower, one euro buys fewer dollars.
Reading a quote this way also tells you what a trade actually does. When you buy the pair (go long EUR/USD) you are buying euros and selling dollars. When you sell the pair (go short) you are selling euros and buying dollars. Importantly, the profit or loss from that trade will initially be measured in the quote currency — in this example, US dollars.
Why the quote currency matters in practical trading
The quote currency is the unit in which prices, spreads and many costs are expressed. That has several practical consequences for traders.
First, profit and loss are settled in the quote currency. If you open a EUR/USD position and make 50 pips on a standard lot, your profit will be in USD. Second, spreads (the difference between bid and ask) are quoted in the quote currency so your transaction cost is directly linked to it. Third, pip values and position sizing depend on the quote currency: when the quote currency is USD, pip values for standard, mini and micro lots are easy to remember; when it’s another currency you usually need to convert pip value into your account currency.
Those relationships affect risk management. If your trading account is denominated in the same currency as the quote currency, you avoid an extra conversion step and see your P&L directly. If your account uses a different currency, broker software converts profits and losses at prevailing exchange rates and that conversion can change your realized result slightly.
Examples that show how the quote currency behaves
Concrete examples help make the mechanics clear.
If EUR/USD = 1.1000, one euro costs 1.10 US dollars. Buying one standard lot (100,000 units of EUR) and later closing the trade after a 50‑pip move in your favor (from 1.1000 to 1.1050) yields a profit of 50 pips. For a standard lot with USD as the quote, one pip is typically $10, so 50 pips = $500.
If USD/JPY = 145.00, one US dollar buys 145 Japanese yen. Note that yen pairs are quoted with two decimal places instead of four, so one pip is 0.01 JPY. Pip values and the way you calculate P&L differ because the quote currency is JPY, not USD; if your account is in USD you may need to convert the JPY result back into USD.
Exotic pairs show another aspect. If EUR/TRY = 32.5000 (euro quoted in Turkish lira), the quote currency is TRY and the rate is much larger because the lira has a lower value per unit. Exotic quote currencies can be volatile and often have wider spreads and lower liquidity, which increases trading costs and execution risk.
Pip value, position sizing and the quote currency
Pip value depends on the pair and the quote currency. When the quote currency is your account currency, pip value for a fixed lot size stays constant for that pair (ignoring rate moves). For example, in most USD-quoted pairs one pip in a standard lot = $10, in a mini lot = $1, and in a micro lot = $0.10. When the quote currency isn’t your account currency you must convert the pip value into your account currency using the current exchange rate.
Position sizing uses pip value to translate a stop-loss (in pips) into a monetary risk and then into the correct lot size. Because pip value depends on the quote currency, you should always confirm the currency used for the P&L calculation before sizing a trade.
Cross rates and quote currency conventions
Many exchange rates are quoted against the US dollar, but currency conventions vary. Some pairs are typically displayed with USD as the quote currency (EUR/USD), others with USD as the base (USD/JPY). This convention affects how traders interpret movements and where the profit currency will come from. When you want to trade two currencies that are not both directly quoted against your account currency, brokers and traders use cross rates to convert values — another situation where the identity of the quote currency matters.
Common quote currency conventions include several widely used currencies:
- The US dollar (USD)
- The euro (EUR)
- The Japanese yen (JPY)
- The British pound (GBP)
- The Swiss franc (CHF)
- Other regional or emerging market currencies, which appear as quote currencies in exotics
Practical notes for traders
Always check how your broker quotes pairs and how many decimal places are used, since this affects pip definitions and calculations. Confirm whether swap/rollover rates, margin requirements and commissions are expressed in the quote currency and how they are converted to your account currency. When trading exotics or thinly traded crosses, expect wider spreads and occasional slippage; those costs are expressed in the quote currency and can materially change the economics of a trade.
Risks and caveats
Trading forex involves real financial risk and is not suitable for everyone. The quote currency affects your exposure and the currency in which profits and losses are initially measured, but currency conversion, volatility and liquidity mean the final outcome can differ from simple calculations. Exotic quote currencies often exhibit higher volatility, wider spreads and limited liquidity, increasing the chance of slippage and unexpected costs. Brokers may quote pairs differently or apply different pip definitions and commission structures, so always verify calculation conventions before using a live account. This article does not constitute personalised financial advice; if you are unsure about how the quote currency affects your trades, consider practising in a demo account and seeking independent professional guidance.
Key takeaways
- The quote currency is the second currency in a pair and shows how much of that currency is needed to buy one unit of the base currency.
- Profits, losses, spreads and many fees are initially expressed in the quote currency, so account currency relative to the quote currency matters for conversion and risk.
- Pip values and position sizing depend on which currency is quoted; when the quote currency isn’t your account currency you must convert P&L and pip values.
- Trading carries risk; this information is educational and not personalised advice.
References
- https://hycm.com/en/blog/terminologies/quote-currency
- https://tradenation.com/articles/base-currency-and-quote-currency/
- https://www.babypips.com/forexpedia/quote-currency
- https://fixer.io/base-currency-and-quote-currency
- https://www.investopedia.com/terms/q/quotecurrency.asp
- https://www.cmegroup.com/education/courses/introduction-to-fx/understanding-fx-quote-conventions.html