Indirect Quote
Candlefocus EditorFor example, if it is stated that the indirect quote of USD/EUR is 0.91, this means that 1 EUR is worth 0.91 USD. On the other hand, a direct quote represents the value of 1 unit of a foreign currency in terms of the domestic currency, such as 1USD = 0.91 EUR.
Indirect quotations are important to traders as they are used to calculate and track changes in exchange rates. They provide a way of measuring the strength of one currency against another. This type of quotation is especially useful for calculating net cash positions when trading foreign exchange. By tracking changes in the indirect quote, traders can accurately assess the amount of money that can be earned or lost in a trade.
In the foreign exchange market, indirect quotes are typically expressed in terms of the domestic currency per unit of foreign currency. This makes it easier for traders to compare the cost of buying and selling currencies. The ratios of the indirect quote often vary from one currency to the other and from one market to the other.
In addition to providing a useful tool for traders, indirect quotes are also used by economists to measure and forecast movements in the currency markets. By tracking these factors, they can identify potential opportunities and assess the overall state of the economy.
In short, an indirect quote in the foreign exchange market provides a way to measure the strength of one currency against another by expressing the amount of foreign currency needed to purchase one unit of the domestic currency. By tracking the changes in the indirect quote, foreign exchange traders can accurately assess how much money they are likely to earn or lose in a particular trade. Economists also use indirect quotes as an important tool to measure and forecast shifts in the overall market.