When forex trading, the base currency refers to the first currency quoted in a currency pair. It is also called the transaction currency. For accounting purposes, the base currency refers to the domestic currency which represents all profits and losses.
Currency pairs are always used in forex trading because traders sell one currency to buy another. For example, if a trader was looking at the CAD/USD currency pair, this means the Canadian dollar would be the base currency and the US dollar would be the quote currency.
When provided with an exchange rate, a currency pair shows how much of the quote currency is needed to buy one unit of the base currency. For instance, with USD/EU, the US dollar is the base currency. If it has an exchange rate of 0.8500, then it means it takes 0.85 euros to buy one dollar.
When a trader trades forex, they can either go long or short. This means that they need to know which currency in the currency pair is considered ‘strong’ or ‘weak’. If a trader expects that the base currency will rise or the quote currency will fall, they may open a long position. Conversely, if they speculate the quote currency will rise or the base currency will fall, they may open a short position.
ADSS offers a range of global markets for traders, with CFD opportunities in indices, commodities, forex, equities and more. We also feature tutorials, how-to guides, and weekly webinars to help you navigate the financial markets and find better trading opportunities. You can start trading and investing online by opening a live trading or demo trading account.