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Quotes

A Forex transaction can be quoted in either currency, but it must always have two sides. The first currency listed is the base currency and is always 1. The second currency listed, also called the counter currency, is the amount necessary to buy one unit of the first currency. An example of this is a quote of the U.S. dollar and the Japanese yen at 106, shown as USD/JPY 106. This means that for every U.S. dollar you receive 106 Japanese yen. The U.S. dollar is the base currency, and the yen is the counter currency. Therefore, if the USD/JPY quote moves from 106 to 107, the yen is getting weaker and the dollar stronger. If the quote moves from 106 to 105, the dollar is getting weaker. It's critical to understand the relationship between the base and counter currency.

A quick rule of thumb is that if you trade the base currency, the counter currency executes the reverse. So if you believe the U.S. dollar will gain strength against the Japanese yen, you should buy USD/JPY. This trade buys you U.S. dollars and sells Japanese yen. If you believe the dollar will lose value, you should sell USD/JPY. That sells USD and buys JPY.


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