How To Read A Currency Pair

A quote like EUR/USD 1.0800 confuses people because it looks like a price without a thing being priced. It is a price — the euro is what is being bought, and the US dollar is what it costs.

Base and quote

The first currency is the base. The second is the quote. The number tells you how many units of the quote currency buy one unit of the base.

So EUR/USD at 1.0800 means one euro costs 1.08 US dollars. If it moves to 1.1000, the euro has strengthened against the dollar — the same euro now costs more dollars. If it falls to 1.0500, the euro has weakened.

The pair does not tell you anything about either currency on its own. EUR/USD rising could mean the euro gained strength, or the dollar lost it, or both moved and the euro moved more. It is a ratio, and a ratio only ever tells you about the relationship.

Why USD/JPY looks backwards

In EUR/USD and GBP/USD, the dollar is the quote currency, so a rising number means a weaker dollar. In USD/JPY and USD/CAD the dollar is the base, so a rising number means a stronger dollar.

This trips up almost everyone at first. USD/JPY going from 150 to 155 means the dollar strengthened against the yen. Same direction on the screen, opposite meaning for the dollar.

Pips and the size of a move

A move from 1.0800 to 1.0801 is one pip — the fourth decimal place in most pairs, and the second decimal place in yen pairs. Pips sound tiny because they are. They matter because currency positions are usually large relative to the move, which is also precisely why currency trading loses money quickly for people who have not sized a position deliberately.

Watch a few pairs move on the markets page before putting anything at risk. The relationships become obvious much faster by observation than by reading about them.