European Terms

What Are European Terms?

European terms are a method for citing currency exchange rates where the USD is dependably the base currency. It is an alternative to American terms, or direct terms, for forex quotations that alludes to the amount of a foreign currency is expected to buy one U.S. dollar.

Figuring out European Terms

While citing currency pairs in the forex market, prices are laid out utilizing the base currency and the quote currency (otherwise called the terms or counter currency). Currency pairs can be addressed as the following: base currency/quote currency, or for instance, USD/EUR. This is known as a direct quote. In European terms, the USD is constantly positioned in the base currency position, meaning the amount of a foreign currency is expected to buy one U.S. dollar. This is a type of indirect quote.

For instance, expect there is a bid quote of USD/EUR at 0.829 and a ask quote of USD/EUR at 0.831. From the United States viewpoint, these quotes are given in European terms. The first would imply that the maximum a buyer will pay for one U.S. dollar is 0.829 euros, though the second addresses the base a seller will receive for one dollar. In this case, 0.831 euros.

No matter what the citing convention, when you buy a currency pair you are buying the base currency and selling the term currency. On the other hand, when you sell a currency pair you are selling the base currency and buying the term currency.

Foreign Exchange Trading and European Terms

Foreign exchange is the trading of foreign currencies. The foreign exchange market is the biggest, most liquid market in the world. Traders can create a gain on trading currencies the same way they would by trading different assets. Buying a currency low and selling it high is similar goal as different investments while seeking positive returns.

While trading in foreign exchange, it is significant for investors to comprehend the currency terms being addressed. While trading currencies against USD, the currency is reported in either American terms or European terms, per standard practice.

Model

For instance, the Swiss franc (CHF) trades in European terms in the spot market. The currency pair is addressed as USD/CHF. Then again, the British pound (GBP) trades in American terms on the futures market. It is addressed as GBP/USD. Customarily the quote convention for futures is not the same as spot, and this is important for traders to know with the goal that they are aware of the right direction of their trade.

Highlights

• In forex markets, traders ought to know that the futures market and the spot market frequently quote currency pairs in various terms, for example American terms versus European terms.
• European terms allude to a foreign currency exchange quotation in terms of the amount of a foreign currency expected to buy one U.S. dollar, thus USD is consistently the base currency.
• European terms is a type of indirect quote including U.S. dollars.