Quoted and base currencies and their role in the quotation
When trading Forex you have to deal with a lot of different concepts to which the calculation of various parameters that are important in trading is tied.
One of these concepts is the quote and everything connected with it, since on the basis of this knowledge the cost of the lot and the value of the point, as well as the swap, are calculated.
The quotation is formed by two currencies, the first of which is the base one, the second the quoted one. It would seem that there is nothing simpler, but.
Base currency
This is the currency in which transactions are carried out and the volume of the transaction is calculated in it, which is why it is called the base one.
For example, GBPUSD currency pair British pound US dollar, here the base is the British pound, volumes are calculated in it.
That is, if it is said that one lot of the GBPUSD currency pair was purchased, this means that 100,000 British pounds were purchased for American dollars.
In exchange transactions, it simply states which currency was bought or sold without mentioning the currency of the pair, in which case it is implied that the settlement was made in the national currency.
For example, we hear that today I bought 100 US dollars, which means that today a transaction was made to purchase American currency for Russian rubles.
The question often arises: why is this or that monetary unit placed first among the currencies?
There are no special preferences here, but as a rule it will be a more popular monetary unit, most often it is the euro or the US dollar, but there may be other options.
Quoted currency
This is the second currency from the quote; it is also called the settlement currency, since it is in it that the transaction is settled.
That is, if we return to our example, when buying 1 lot of the GBPUSD pair, 125,371 US dollars will be paid.
It is on the basis of the quoted currency that the pip size is calculated, which is equal to the value of one unit and the last digit from the quote record.
To make it clearer, the price of GBPUSD is 1.25371, here the cost of one point will be equal to one dollar.
Read more about how to calculate the value of a pip in the article - http://time-forex.com/terminy/punkt-forex
Also, the size of the swap depends on which currency is the base or quoted one, which is calculated as the difference between the discount rates of the currencies forming the pair .
When selling, you sell a base currency that you do not have, which means you take it on credit at the discount rate, but you receive a quoted currency and you are charged interest on it.
If the remuneration percentage is less than the lending rate, you pay a negative swap for transferring the transaction; if it is less, then you receive additional profit.
Read more about swap calculations - http://time-forex.com/praktika/svop-fx
Therefore, it is so important which currency is the base one and which one is the quoted one; this aspect affects both the volume of transactions and the probable profit.