In EUR/USD, EUR is the base currency and USD is the quote currency. A rate of 1.1000 means 1.10 USD per EUR. Reading that unit correctly helps distinguish the position's direction, its money result and the account currency.

First is base, second is quote

The quoted rate prices one unit of base currency, rather than requiring every transaction to involve exactly one unit. Position size is a separate quantity. USD/JPY = 150.00 means 150 JPY per USD, because USD is first in that notation.

Start with what forex is if the difference between a currency exchange and a derivative is unclear.

Anatomy of a currency pair Diagram of the EUR/USD quote at 1.0850. The first currency, EUR, is labelled the base currency — the single unit being traded. The second, USD, is the quote currency — the price paid per unit. Below, USD/JPY at 156.20 illustrates that yen pairs carry two decimal places. Anatomy of a currency pair EUR / USD BASE currency the 1 unit you trade QUOTE currency the price per unit = 1.0850 EUR/USD at 1.0850 means: 1 euro costs 1.0850 dollars Yen pair — pip sits on the 2nd decimal USD/JPY = 156.20 USD/JPY at 156.20: two decimals, because the yen is much smaller per unit forex-basics.com
Figure 1. The first currency is the base and the second the quote. The illustrated decimal places are examples; displayed precision and minimum price increments depend on the instrument.

Read both the number and the unit

In a hypothetical EUR/USD move from 1.1000 to 1.1020, one euro's dollar price rises by 0.0020 USD. A USD/JPY rise instead means one dollar buys more yen. A rising chart therefore does not mean the dollar always strengthens or always weakens.

Illustrative model · how it works

Invert the bid and ask as well as the rate

Taking the reciprocal of the bid alone gives the wrong bid for the reversed pair. For hypothetical EUR/USD quotes of 1.1000 / 1.1002, the inverse bid and ask are 1/ask and 1/bid. Write the price unit alongside each quote.

Scroll sideways to see the full diagram

Invert the bid and ask as well as the rateEUR/USD has a bid of 1.1000 and ask of 1.1002, in USD per EUR. The reversed USD/EUR quote has bid 1/1.1002, approximately 0.90893, and ask 1/1.1000, approximately 0.90909, in EUR per USD. Crossed lines connect the new bid to the original ask and the new ask to the original bid.EUR/USDUSD/EURBID1.1000USD per EURBID = 1 / old ASK≈ 0.90893EUR per USDASK1.1002USD per EURASK = 1 / old BID≈ 0.90909EUR per USDChange the unit and swap the quote sides.The new bid is still below the new ask.

Hypothetical simultaneous executable quotes with no separate fees. Values are rounded to five decimal places. This model does not apply to a single reference rate with no executable bid/ask offer. MT5 explains buying at the ask and selling at the bid; the ECB distinguishes reference rates from transaction rates.

Taking the reciprocal changes the price unit from USD per EUR to EUR per USD. Swapping the sides preserves the quote's economic meaning: the buying and selling prices now refer to the new base currency.

Direction does not establish ownership

Buying a deliverable EUR/USD exchange acquires euros against dollars under its terms. Buying a EUR/USD CFD creates exposure to the rate without delivering the euro principal. A long benefits from a higher closing execution price before costs; a short has the opposite price exposure. See long and short positions.

Costs and execution matter too. A small favourable movement of a displayed reference price does not guarantee a net profit when the opening and closing prices use different sides of the quote.

Pip size and displayed precision differ

A common forex pip convention is 0.0001 for EUR/USD and 0.01 for USD/JPY. A platform may show finer increments. The pip is not necessarily its smallest tradable tick or last displayed decimal. Read what a pip is and check the specification.

The price increment has units of quote currency per base currency. Multiplying by base-currency units gives its money value in the quote currency in the linear model used here.

Size determines the money effect

Assume a linear EUR/USD contract represents 100,000 EUR per lot and uses a 0.0001 pip. One lot has a 10 USD pip value; 0.10 lot represents 10,000 EUR and has a 1 USD pip value. These stated assumptions matter. The same contract multiplier should not be imposed on every instrument.

A 10,000 EUR long opened at 1.1000 and closed at 1.1020 produces 20 USD before separate costs: 10,000 × 0.0020. For pip value in another account currency, conversion is a separate step. Cross rates and the currency-pair glossary help check the units.

Two pairs, one stated size

Model positionAssumed pipMoney value
10,000 EUR in EUR/USD0.0001 USD per EUR1 USD
10,000 USD in USD/JPY0.01 JPY per USD100 JPY

These are linear hypothetical positions. Account conversion, fees and any different product multiplier remain separate. A smaller unit price of a currency is not a rule fixing how many decimals every provider must display.

Conventions do not forbid reversed quotes

EUR/USD is a familiar market notation, but USD/EUR is a valid reciprocal quotation. Neither an informal currency hierarchy nor an ISO currency code determines the only possible price orientation. Read the actual pair and its units instead of assuming the euro can never appear second.

An inverse rate changes percentages

Without spreads, EUR/USD rising 10% from 1.1000 to 1.2100 changes the inverse USD/EUR from about 0.90909 to 0.82645 EUR per USD: a fall of about 9.09%. For an original return r, the inverse return is 1/(1 + r) − 1, provided the rates stay positive.

Direct and indirect quotation depend on the home currency used for comparison. Account currency is another concept: a USD price result may be converted to the account's currency under provider rules.

Use codes before nicknames

Market commentary may use names such as cable for GBP/USD. A nickname does not replace the product code, quotation units or contract specification. Confirm those before calculating a position or interpreting a direction.

A short practice check

For three pairs, write the base, quote and unit of price. Then calculate one small hypothetical price change at a stated size. On demo, compare the recorded execution and costs with your calculation rather than assuming a chart move alone determines the outcome.

The separate diagram below reverses an executable bid/ask quote. A reciprocal rate changes its units; the new bid is 1/original ask and the new ask is 1/original bid. A single informational reference rate is not an executable two-sided quote.