In the foreign exchange (forex) market, there are two primary types of currency exchange rate quotes: direct and indirect quotes.
1. Direct Quote: In a direct quote, the domestic currency is the base currency, and it is fixed at one unit. This means that the direct quote expresses the value of one unit of the domestic currency in terms of the foreign currency. For example, if you see a direct quote for the EUR/USD pair as 1.2000, it means that one euro (EUR) is equivalent to 1.2000 U.S. dollars (USD). Direct quotes are commonly used in Europe and some other parts of the world.
2. Indirect Quote: In an indirect quote, the domestic currency is the counter currency, and it is set at one unit. This type of quote expresses the value of one unit of the foreign currency in terms of the domestic currency. Using the same example, if you have an indirect quote for the EUR/USD pair as 0.8333, it means that one U.S. dollar (USD) is equivalent to 0.8333 euros (EUR). Indirect quotes are commonly used in the United States and many other countries.
The choice between direct and indirect quotes depends on market conventions and the preference of financial institutions in a particular region. Both types of quotes convey the same exchange rate information but present it in a slightly different format. Understanding these quote formats is essential for forex traders and investors to accurately interpret currency exchange rates and make informed trading decisions in the global currency market.
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Member SinceDec 26, 2022
Posts 72
Chewning
Sep 18, 2023 at 12:321. Direct Quote: In a direct quote, the domestic currency is the base currency, and it is fixed at one unit. This means that the direct quote expresses the value of one unit of the domestic currency in terms of the foreign currency. For example, if you see a direct quote for the EUR/USD pair as 1.2000, it means that one euro (EUR) is equivalent to 1.2000 U.S. dollars (USD). Direct quotes are commonly used in Europe and some other parts of the world.
2. Indirect Quote: In an indirect quote, the domestic currency is the counter currency, and it is set at one unit. This type of quote expresses the value of one unit of the foreign currency in terms of the domestic currency. Using the same example, if you have an indirect quote for the EUR/USD pair as 0.8333, it means that one U.S. dollar (USD) is equivalent to 0.8333 euros (EUR). Indirect quotes are commonly used in the United States and many other countries.
The choice between direct and indirect quotes depends on market conventions and the preference of financial institutions in a particular region. Both types of quotes convey the same exchange rate information but present it in a slightly different format. Understanding these quote formats is essential for forex traders and investors to accurately interpret currency exchange rates and make informed trading decisions in the global currency market.