Direct & Indirect Quotes – Understanding Forex Quotes
Direct and Indirect Quote
Forex rates in the currency exchange market are displayed in pairs by market makers (or dealers). Exchanges rates on the other hand are forex rates or FX rates that represent the value of one currency in relation to another currency. For e.g., 1USD = 96.62 JPY. This is the exchange rate between the US Dollar and Japanese Yen, which means that 1 US dollar is equal to 96.62 Yen. This would be represented as USD/JPY = 96.62.
Direct Quote – A direct quote means indicates how many units of local currency traders need to buy one unit of foreign currency. In other words, it’s the home currency price of 1 unit of foreign currency. In a direct quote, the domestic currency is always listed as the base currency.
For instance, for a US trader to compare the Singapore Dollar (SGD), to say, the US Dollar, the pair will be listed as USD/SGD, which indicates how many US Dollar are required to buy one Singapore Dollar. Here, the USD is the base and the SGD is the counter currency.
Indirect Quote – Indirect quote indicates how many foreign currencies are needed to purchase one unit of domestic currency. In an indirect quote, the foreign currency is the base currency and the domestic currency is the counter or quote currency.
For instance, if Singapore is the foreign market, then an Indirect Quote will be displayed as SGD/USD. This quotation is the reverse of direct quote which means that how many Singapore Dollars are needed to buy a single US Dollar.
Learn how to read FX quotes
In the Forex market, currencies are traded in pairs and it is not difficult to understand forex quotes. Currency pairs consist of two currencies; Base currency and Quote currency. Base currency is the first currency of the pair (numerator) and the second one is called the quote currency
(denominator). For e.g. In the USD/JPY pair, the US Dollar is the base currency and the Yen is the quote currency.
Before start trading, traders have to understand basic terminology. The most important thing is to be able to read forex quotes and to understand how to simultaneously buy one currency and sell the other.
1. USD/CAD- the picture below depicts a typical forex quote and shows how to read the bid and ask prices for the USD/CAD. Here, the US Dollar is the base currency and the Canadian Dollar is the quote currency. The bid price for the pair is 1.1735 and the ask price is 1.1738. If a trader takes
this trade, then it means that he is buying the US Dollar and simultaneously selling the Canadian Dollar.