Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Secondary Currency

What it is:

Also called quote currency or counter currency, a secondary currency is the currency in a currency pair.

How it works (Example):

Major pairs are the four pairs of currencies that are most commonly traded in the foreign exchange markets.

The major pairs are Euro/U.S. Dollar (EUR/USD); U.S. Dollar/Japanese Yen (USD/JPY); U.S. Dollar/Swiss Franc (USD/CHF); British Pound/U.S. Dollar (GBP/USD). There are about a dozen popular pairs that constitute the majority of forex trading, but these four are the biggest.

Buying and selling currency always involves two currencies: the currency you’re paying with (that is, the currency you’re selling) and the currency you’re buying. Thus, currencies are traded in pairs. The base currency is the currency you’re selling, and the secondary currency is the currency you’re buying.

For example, if you purchase a JPY/USD pair that is quoted at 1.40, then for every 1.40 U.S. dollars you sell, you get 1 Japanese yen. The secondary currency here is the yen.

Why it Matters:

Understanding which currency you're buying and selling in foreign exchange transactions is crucial, especially with the major pairs. They drive a lot of the activity in the currency markets because they are so popular.