can somebody, anybody clearly explain in understandable terminology the Direct Currency Quote vs. the Indirect Currency Quote? I have read many varying explanations, with no clear defining easily understood correlation. the latest example I have read on a training app is USD/CAD and CAD/USD…any and all help would be appreciated. Thank you and awaiting replies.
Investopedia defines those terms this way:
Direct quote and indirect quote are terms used by travellers making physical currency exchanges.
In the forex market, those terms are not used by traders, who do not actually exchange one currency for another in the course of their trading.
If your home currency is USD and you want to travel to Canada, and you need some local currency while you are there, you might consult an exchange service for a quote on some Canadian currency for your trip.
You might start by asking how much the Canadian dollar costs (in USD). The service might give you a direct quote of 0.78849 USD per Canadian dollar.
Alternatively, you might ask how much Canadian currency you can buy for one USD. In this case, the service might give you an indirect quote of 1.26825 CAD per US dollar.
Note that these exchange-service prices are seriously marked-up (5%, in fact) over the current USD/CAD forex price (1.3350 approximately).
In the forex market, traders adhere to the standard order in which base currencies and quote currencies are stated. This order is determined by a hierarchy of pair-designations universally agreed to. The hierarchy is as follows:
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In all EUR-pairs, the EUR is the base currency.
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In all GBP-pairs, except EUR/GBP, the GBP is the base currency.
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In all AUD-pairs, except EUR/AUD and GBP/AUD, the AUD is the base currency.
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In all NZD-pairs, except EUR/NZD, GBP/NZD, and AUD/NZD, the NZD is the base currency.
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Etc., down through USD-pairs, CAD-pairs, CHF-pairs, minor pairs, exotic pairs, and JPY-pairs.
Note that the JPY is always the quote currency (never the base currency) in all JPY-pairs.
It’s possible to invert any of these standard pairings.
For example, the standard pairing of the US and Canadian dollars is USD/CAD. But, you can easily calculate the inverse pair CAD/USD, and in some statistical applications, this is useful and is done.
In such cases, the term used by traders (and statisticians) is inverse quote (not indirect quote).
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I knew this was one of the questions @Clint would answer, as always a very thought out answer too.
Clint, you should do a little book; i’m sure we could all refer to it from time to time. It’s surprising how often a seemingly “simple” question pops up and i’m sat here thinking “where does one start”
Have a great xmas 