In foreign exchange trading, what is a 'currency pair'?

A 'currency pair' refers specifically to the quotation of two different currencies, with one designated as the base currency and the other as the quote currency. In this context, the base currency is the first currency listed in the pair, and it represents the value against which the second currency (the quote currency) is compared. For example, in the currency pair EUR/USD, the euro (EUR) is the base currency, and the US dollar (USD) is the quote currency.

The value of a currency pair indicates how much of the quote currency is needed to purchase one unit of the base currency. This structure is essential in foreign exchange trading, as it allows traders to assess the relative strength of one currency against another and facilitates the buying and selling of currencies in the forex market.

Recognizing this definition is crucial for understanding trading strategies and market movements. The workings of currency pairs directly tie into concepts such as exchange rates, market dynamics, and financial assessments in the trading environment.