CandleFocus Glossary Editor
A direct quote is the most common way of expressing a currency pair quote. It is used to determine how much domestic currency (e.g. US Dollar) must be exchanged in order to purchase one unit of foreign currency.
Direct quotes are most often expressed in terms of the U.S. Dollar (USD), which is the primary global currency and the most traded currency in the world. Thus, direct quotes often take the form "USD/[Currency Pair]". For instance, 1 USD = 0.8 CAD, indicating 1 US Dollar must be exchanged in order to purchase .8 Canadian Dollars.
However, due to their historical and current importance, some currencies including the British Pound (GBP) and Euro (EUR) are not expressed in terms of the US Dollar. These exchanges are known as indirect quote, and these exchanges commonly take the form "[Country Currency]/USD". For instance, 1 EUR = 1.22 USD, indicating 1 Euro must be exchanged in order to purchase 1.22 US Dollars.
In both direct and indirect quotes, the base currency is always expressed as a per-unit value of the currency pair. For example, while a direct quote of 1 USD = 0.8 CAD reflects how much US Dollars (base currency) are worth in Canadian Dollars (counter currency), an indirect quote of 1 CAD = 0.8 USD (1 CAD = 0.8 USD) reflects how many Canadian Dollars (base currency) are worth in US Dollars (counter currency).
The direct and indirect quote are essential for understanding currency rates and for accurately predicting their behavior and appreciation rate. Traders must pay close attention to the quote format when monitoring global Forex markets, making sure to take into consideration the magnitude of changes between the domestic currency and foreign currency.
Direct quotes are most often expressed in terms of the U.S. Dollar (USD), which is the primary global currency and the most traded currency in the world. Thus, direct quotes often take the form "USD/[Currency Pair]". For instance, 1 USD = 0.8 CAD, indicating 1 US Dollar must be exchanged in order to purchase .8 Canadian Dollars.
However, due to their historical and current importance, some currencies including the British Pound (GBP) and Euro (EUR) are not expressed in terms of the US Dollar. These exchanges are known as indirect quote, and these exchanges commonly take the form "[Country Currency]/USD". For instance, 1 EUR = 1.22 USD, indicating 1 Euro must be exchanged in order to purchase 1.22 US Dollars.
In both direct and indirect quotes, the base currency is always expressed as a per-unit value of the currency pair. For example, while a direct quote of 1 USD = 0.8 CAD reflects how much US Dollars (base currency) are worth in Canadian Dollars (counter currency), an indirect quote of 1 CAD = 0.8 USD (1 CAD = 0.8 USD) reflects how many Canadian Dollars (base currency) are worth in US Dollars (counter currency).
The direct and indirect quote are essential for understanding currency rates and for accurately predicting their behavior and appreciation rate. Traders must pay close attention to the quote format when monitoring global Forex markets, making sure to take into consideration the magnitude of changes between the domestic currency and foreign currency.