A quote is the most recent market price that a financial instrument was traded on, meaning a buyer and a seller agreed to transact at that price. A quote is also known as an exchange rate.
Currencies quotations appear in pairs. A Forex quote is usually given as GBP/USD = 1.5685. This means: 1 U.S. dollar equals 1.5685 Great Britain pounds.
Forex prices are quoted to four or five decimal places. Having pricing that goes to the fifth decimal place has a few advantages, such as:
- a reduced difference between the ask and the bid price, which translates into smaller transaction costs;
- better liquidity and improved execution for the trader;
- higher accuracy in price execution.
In the case of the Japanese yen, the situation slightly differs when compared to the other currency pairs. Whenever the Japanese yen is in the counter currency, the Forex quote is given in two decimal places instead of four.
A yen pair is usually given as USD/JPY = 118.43. This means: 1 U.S. dollar is equivalent to 118.43 Japanese yen.
There are two types of quotes:
- Direct quote – the price of a foreign currency is denominated in certain units of the national currency;
- Indirect quote – the price of a national currency is denominated in certain units of the foreign currency. For example, USD/JPY is a direct quote for Japan.
In the next components, we will go into further detail regarding quote structure, the bid price and ask price, as well as the definition of pips.
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