Different Types of Quotations in Forex Market

Since a trader's profit or loss is determined by movements in price, so learning how to read currency pairs is one of the first skills traders should have before traders should have before entering and succeeding in the forex market.

Forex quotations can be quite complex for the average person. It takes some training and knowledge to understand that these quotations can be provided in more than one way. In this article,we will explain what Forex quotes are and how a Forex direct quote differs from an indirect one.

What Is Forex Quote

In every trading market, there is a certain type of asset that traders buy and sell and get payouts as a result. In stock trading, traders use company shares, in commodities, there are gold, silver, and other material assets. And in Forex, there are currency pairs.

A forex quote is the price of one currency in terms of another currency. These quotes always involve currency pairs because you are buying one currency by selling another.

In order to read currency pairs correctly, traders should be aware of the following fundamentals of a forex quote:

Quote name: A trading quote is represented by two currency symbols (or ISO codes) separated by a slash, each currency symbol is three letters long. Usually, the first two letters define the name of the country and the last letter the name of the currency.For example, the Euro is shortened to EUR and the US dollar to USD. Although most major currencies are listed this way, there are exceptions among the so called 'exotic currencies'.

Base currency and variable currency:

Forex quotes show two currencies, the base currency, which appears first and the quote or variable currency, which appears last. The price of the first currency is always reflected in units of the second currency. For example, when viewing the EUR/USD currency pair, EUR is the base currency and USD is the variable/quote currency.

Bid and ask price: A bid price is offered by a buyer of a certain asset. It represents the maximum amount of money that they are willing to pay for it and they usually try to make it as low as possible. An ask price is offered to a buyer of an asset. It represents the minimum amount of money that the buyer is willing to take for it and they tend to demand as high a price as possible.

This may seem confusing as it is only natural to think of “bid” in terms of buying so just remember the bid/ask terminology is from the brokers perspective.

Direct Quote And Indirect Quote in Forex

Direct Quote

A direct quote is an exchange rate quotation in the foreign exchange market. It quotes a fixed unit of a foreign currency against a variable amount of the domestic currency. In other words, a direct quote depicts the amount of foreign currency that can be bought for a certain unit of the domestic currency.

Basically, a traders existing location and the domestic currency define the type of the quote. Additionally, having both varieties at the same time still is a possible thing to deal with. According to the official terminology, direct quotation represents the amount of local currency that the trader needs to purchase just a single unit of the foreign one.

Therefore, if unit of the domestic currency were to be exchanged, how many units of the foreign currency would it beget？ This method is also alternatively referred to as the price quotation method.

Indirect Quote

This method is the opposite of the direct quotation method. Under this method, the quote is expressed in terms of foreign currency. Therefore this rate assumes one unit of foreign currency. It then expresses how many units of domestic currency are required to obtain a single unit of a foreign currency. Sometimes this quote is also expressed in terms of 100 units of foreign currency. This method is often referred to as the quantity quotation method.

The use of direct quotes versus indirect quotes depends on the location of the trader asking for the quote, as that determines which currency in the pair is domestic and which is foreign.

Should You Choose Direct Quote or Indirect Quote

Both the direct quote and indirect quote are very useful in trading. When it comes to using direct quotes, are very easy to calculate. Theres 0 math involved in finding out how much you have to deposit and how much payout you will receive. Indirect quotes are a bit more difficult because they require a lot of calculating to determine the exact outcome.

The direct and indirect quote in Forex is just a name and not necessarily something you absolutely have to say. You can simply refer to them as USD/EUR or EUR/USD, whichever you prefer.

However, when you are trading with the software, it‘s likely that the currency you chose as your base will be referred to as the direct quote. It’s just something you have to know so that youre not confused when using the software.