Direct vs indirect quotes - Key takeaways
There are three major takeaways that you can use from this guide. Although it may seem a bit overwhelming, note that it’s very easy to remember these names once you actually start trading.
The first lesson is that Forex quotes are already a part of your trading life, they’re the main things from which a currency pair consists. The base currency + quote currency can be both a direct and indirect quotation. It simply depends on which currency you’re focusing on or use on a daily basis.
The second lesson is that most traders try to focus on direct currencies because it’s much easier to calculate. If you’re looking for a direct currency quote for USD, it’s best to look for pairs that start with USD. For example, if the exchange rate for USD/EUR is 0.9454 this means that you can buy 0.94 Euros with 1 dollar.
The third lesson is that there’s no need to chase your native currency to have a direct quote. You can simply focus on a single currency and pair it up with almost anything. As long as it’s the base currency, then you’re trading with direct currency quotes.
FAQ on direct vs indirect quotes
Why should I trade with direct quotes?
Both the direct quote and indirect quote are very useful in trading. When it comes to using direct quotes, are very easy to calculate. There’s 0 math involved in finding out how much you have to deposit and how much payout you will receive.
In terms of direct and indirect exchange rate quotations, a direct quote is pretty much the exchange rate itself. If your currency of choice is USD, then a USD/EUR is your direct quote.
Why are indirect quotes hard?
Indirect quotes are a bit more difficult because they require a lot of calculating to determine the exact outcome. Let's have a quick direct quote and indirect quote example: Imagine that you want to find out how many Euros you can buy with 1 dollar. You look it up on the internet and it says 0.94 per 1 dollar. Now you want to find out how many dollars you can buy with 1 Euro but can’t look up the exchange rate.
You would have to use that 0.94 to figure out what 1 Euro will get you. The equation looks like this.
X = 0.94Y
Y = X/0.94
Although it may sometimes be easy to calculate, it’s not always the case.
Why not just call them regular pairs?
You can. The direct and indirect quote in Forex is just a name and not necessarily something you absolutely have to say. You can simply refer to them as USD/EUR or EUR/USD, whichever you prefer.
However, when you are trading with the software, it’s likely that the currency you chose as your base will be referred to as the direct quote. It’s just something you have to know so that you’re not confused when using the software.
There is no obligation to call it a direct or indirect quote.
How can I measure my direct/indirect quote size?
When trading Forex, the software doesn’t necessarily measure your trades with direct quotation and indirect quotation. It measures them with lots. A lot is basically a number of currency units. For example, $100,000 is 1 standard lot, $10,000 is one mini lot and etc.
When measuring the volume of your trades, you will never see direct quotes used as a unit of measurement.