Base currency in the financial and foreign exchange markets refers to the first currency listed in a currency pair. For instance, in the pair “USD/EUR”, the USD (US Dollar) is the base currency. The value of the base currency is always 1.
When it comes to trading, the base currency serves as the reference for trades. For instance, if a trader buys the USD/EUR pair, they are essentially buying US Dollars and selling Euros. Conversely, if they sell the pair, they sell US Dollars and buy Euros.
The concept of base currency is also significant in the realm of investments and accounting, where it is the primary currency used by businesses or investors to report their financial results or value their portfolios.