Last Updated: January 3, 2022
For people who have been learning and trading Forex, they may have understood base and counter-currencies are, as they are involving themselves with the terms every day. But for new Forex traders who want to become professionally adept in Forex, must know this basic first before they delve further into strategy, money management, psychology, and other things that are required to trade in Forex.
So, let us dig deeper. When you trade in the Forex market, you are always given two quotes in one pair such USD/IDR, EUR/USD, GBP/USD, and other pairs. In every pair currency there is a base and counter currency. To have a better understanding of a base and counter-currency, we have to know the definition of a base and counter-currency which you can see below.
Base Currency
The definition of a base currency could be seen from Dicks (2010, p. xviii) where he explained that this is the first on the quote. What he meant in his book is that when you see forex pairs, they always have two currencies to be traded and a base currency is the first quote of that currency. An example of this base currency is that if you have IDR and you want to trade it to EUR, then the base currency is EUR.
Counter Currency
The second one, that is, counter-currency is explained by Dicks (2010, p. xviii) that this currency is the second quote. By which this is the opposite of a base currency, which you can see from the example of a base currency I have given in this above paragraph, that is, IDR and EUR; where the EUR is the base currency, then the IDR is the counter currency.
Conclusion
Now, you have understood what a base and counter-currency is, but I would try to simplify it so that it would be easier to understand. So basically, a base currency is the first quote of a Forex pair and a counter currency is the second quote of a Forex pair. Simply, the formula is like this Base Currency (First Quote)/Counter Currency (Second Quote), and from the example of IDR and EUR, they would look like this EUR/IDR which means to get €1 equals around Rp 16.000.
Written by Andre I.
Reference
Dicks, James. 2010. Forex Trading Secrets: Trading Strategies for the Forex Market. New York: McGraw Hill.