Currency Terms

Question 1

Explain me Currency Pair Quotation Market conventions

Answer 1

Counter Currency - Currency that is used as a reference (also known as the Quote Currency)

Base Currency - The currency that is quoted in relation (also known as the transaction Currency)

EUR/USD - (Slash Character is omitted - ISO Codes)

EUR/USD or EURUSD = 1.2500 means - One Euro is exchanged for $1.2500

In above example: EUR is the base currency and USD is the Counter Currency

Question 2

Explain me Currency movements. How would you calculate PnL?

Trading: AUDUSD

Answer 2

Let’s say AUDUSD is @ .8790

This means that, .8790 US cents would buy 1 AUD. If I long this trade, I would profit if Aussie strengthens, which is reflected when the exchange rate is move up (e.g .95 AUDUSD).

If I sell my one AUD, I would get 95 US cents, that’s profit of (.0710 cents)