Counter Currency
What is Counter Currency?
In forex, every trade is quoted as a pair of two currencies; for example, EURUSD. The first one (EUR) is called the base currency, and the second one (USD) is called the counter currency.
So, counter currency is simply the second currency in the pair. It shows the value of the base currency in terms of another. For example:
- If EURUSD = 1.16280, that means 1 Euro (base) = 1.16280 US Dollars (counter currency).
What does the counter currency show?
- The value of the base: The counter currency tells you how much of it is needed to buy one unit of the base currency.
- Profit and loss measure: In most forex trades, your gains or losses are calculated in the counter currency.
- Clear price quotes: Knowing the counter currency helps you read forex pair prices correctly and avoid confusion.
Example of Counter Currency
Let’s say you’re looking at GBPJPY = 198.900:
- GBP (British Pound) = base currency
- JPY (Japanese Yen) = counter currency
This means 1 British Pound is equal to 198.900 Japanese Yen. If the number goes up, the Pound is stronger against the Yen. If it goes down, it’s weaker.
Other Glossary Terms
C
- CFD (Contract for Difference)
A CFD is a financial agreement that allows you to speculate on the price movement of assets, such as stocks, currencies, indices, cryptos, or commodities, without owning them.
- Currency Pair
A currency pair in trading shows the price of one currency compared to another.
- Cross-Currency Pair
A cross currency pair is any currency pair that does not include the U.S. Dollar (USD).
- Close Price
Closing price (or close price) is the last price of a CFDs pair when a trading period ends.
- Commission
Commission (or forex commission, forex trading commission) is like a small service charge you pay to the forex broker every time you open or close a trade.
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