Base Currency

The price of most things are given in some currency. A Big Mac might be $4.99, a share of Apple stock might be $225, or a pint of Guinness might cost €5 in a Dublin pub. Based on where you are, you know what currency to use, and everything you want to buy is just listed in a certain amount of that currency.

But what if you are buying currencies? What if you're trading one currency for another? How do list the price?

Like...if you're trading U.S. dollars to Canadian dollars, you could either say one U.S. dollar is worth C$1.30, or you could say one Canadian dollar is worth $0.77. It could go either way.

That's where base currencies come in. Currency pairs (the prices of two currencies trading against each other) are listed in a particular order. Exchange rates are always given in the same direction. So for instance, the currency pair for the dollar vs. the Canadian dollar is given as USD/CAD. The dollar comes first, making it the base currency. It's the currency that will be the "1" in whatever ratio is given. So if you see USD/CAD trading at 1.30, you know that means one U.S. dollar to 1.30 Canadian dollars.

There's a pecking order to the currency pairs. Euro always comes first...it's always the base currency when compared to another currency. The British Pound is next...it's the base currency against any other currency, except the Euro.
The U.S. dollar is next in line of precedence (generally speaking), but there are quirks to the system. When the U.S. dollar trades against the Australian or New Zealand dollars, for instance, the Aussie or Kiwi is typically given as the base currency. It's, um...not a completely logical system.