Market index returns base currency in forex

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Each day more than 6 trillion transactions are happening on the market, which is open to Forex traders 5. Base currency — Definition and explanation Before all, keep in mind that currency unit prices are quoted as currency pairs in the Forex market. The base currency, or in other words, the transaction currency, represents the first currency in a pair quotation. It is followed by the second part of the quotation which is called the quote, or counters currency.

The reason for that is to represent profits and losses in general. In the foreign exchange market, the base currency is there to show how much of the quote currency is necessary in order to get a straightforward unit of the base currency. On the other hand, quote currency represents the second currency in one currency pair on the Forex market. The International Organization for Standardization, or shortly — ISO, is responsible for prescribing the abbreviation for currencies. These particular codes are provided in standard ISO It all depends on the preferences of the trader, strategy, and main goals.

What Are Base and Quote Currencies? For understanding how to read currency pairs traders need to know terms like base and quote currencies. The base currency is a currency, which you want to take as a major. It defines what is the amount of money you can get with 1 base currency.

The mentioned abbreviations are prescribed by the International Organization for Standardization. Currency pairs are always defined with the three symbols. For example, if one of the trading currency pairs is a Euro, it can be shown on the trading platform and in the list of currencies as EUR. In contrast with the base currency, it should be said, that the quote currencies are the second part of the quotation.

Quote currencies are also known as reporting currency and it shows the amount of money, which can be taken through the 1 base currency. In this case, as the second part of the quotation is a Euro, it is the quote currency.

Until you start trading, as already mentioned, you need to do some research, see news reports and decide whether it worth it to trade with a certain currency or not. Inflation Rate Firstly, one of the main things, that affect currency values is the inflation rate. Through the rising inflation rate, people can buy fewer things with a certain amount of money. When inflation happens this means that the concrete currency is becoming weak. When the inflation rate is high and the country has a big amount of debts including national or foreign debts, there is a much lower chance of acquiring foreign capital.

Interest Rate Another important factor, which affects currency values is interest rates. Interest rates and inflation rates are in most cases highly linked. Interest rate defines the index of the demand on a certain currency.

To make it more simple, imagine that you live in Australia and your national currency is AUD. Through this process, traders can get high returns and because of the higher profits the demand on the Australian dollars increases, which means that the interest rate rises, as well.

This makes a certain national currency stronger and leads to economic growth. For example, if the country decides for some reason to reduce the number of foreign investments in the country, this may lead the country to a recession, which besides may cause a depreciation in the exchange rate.

On the contrary, if the recession makes the inflation rate decrease, this may lead to positive changes and growing demand for a certain currency. Increased demand, on the other hand, is the cornerstone of the currency to become stronger. Tourism In the world where we live tourism has an important role.

People are traveling all around the world and spending their money. If the tourism rate grows this means that the exchange rate of the specific currency and its value rises, as well.