In forex trading, every price you see represents a quotation of one currency against another. These quotations form the foundation of all trades, showing how much of one currency buys or sells a unit of another. Understanding the different types helps traders read charts correctly and place orders accurately.
Forex quotations appear in pairs, always expressed with a base currency and a quote currency. The way the pair is written determines its type—direct, indirect, or cross. Brokers and platforms display prices in one of these formats depending on the trader’s account currency and location.
Knowing these quotation types prevents confusion when comparing prices across brokers or analyzing market moves. This article explains each type clearly, shows real examples, and highlights practical differences for everyday trading decisions.
What a Forex Quotation Actually Shows
A forex quotation consists of two prices: the bid and the ask. The bid is the price at which the broker buys the base currency from you. The ask is the price at which the broker sells the base currency to you.
The difference between bid and ask creates the spread, which acts as the broker’s compensation. Tighter spreads usually appear on major pairs during active hours. Wider spreads occur during low liquidity or major news events.
Quotations always include at least four decimal places for most pairs, though some brokers show five for extra precision. The last digit is called a pip, the smallest price move in forex.
Direct Quotation Explained
A direct quotation shows the value of one unit of foreign currency in the domestic currency. For a trader in Pakistan using PKR as the account currency, USD/PKR is a direct quote because it tells how many PKR are needed to buy one USD.
Most non-USD based traders see their local currency pairs quoted directly. This format feels natural since the domestic currency sits on the right side. It simplifies mental calculations for residents of that country.
Direct quotes rise when the foreign currency strengthens against the domestic one. A move from 278.50 to 279.00 in USD/PKR means the US dollar gained value relative to the Pakistani rupee.
Indirect Quotation Explained
An indirect quotation expresses the value of one unit of domestic currency in terms of the foreign currency. For the same Pakistani trader, EUR/PKR quoted as 0.00359 would be indirect because it shows how many euros one PKR can buy.
In the United States, almost all major pairs use indirect quotation because USD is the quote currency (for example, EUR/USD = 1.0850 means 1 euro costs 1.0850 dollars). This is the global standard for most traded pairs.
Indirect quotes fall when the domestic currency strengthens. If EUR/USD drops from 1.0900 to 1.0800, the dollar has gained purchasing power against the euro.
Cross Currency Pairs (Cross Rates)
Cross pairs do not include the US dollar on either side. Examples include EUR/GBP, AUD/JPY, and GBP/CAD. Traders calculate these rates indirectly using USD as the common link.
Cross rates exist because not every currency pair has enough direct liquidity. Brokers derive the price by combining two USD-based pairs. For instance, EUR/GBP comes from EUR/USD divided by GBP/USD.
These pairs often show wider spreads than major USD pairs. Volatility can increase during European or Asian sessions when USD liquidity is lower. Many traders prefer crosses for diversification away from dollar movements.
Comparison of Quotation Types
| Quotation Type | Format Example | Domestic Currency Position | Common In | Price Movement Meaning |
|---|---|---|---|---|
| Direct | USD/PKR = 278.50 | Quote (right side) | Local non-USD markets | Higher = foreign currency stronger |
| Indirect | EUR/USD = 1.0850 | Base (left side) | USD-based accounts | Higher = base currency stronger |
| Cross | EUR/GBP = 0.8350 | Neither is USD | Diversified strategies | Depends on pair; no direct USD influence |
Bid and Ask in Different Quotation Types
The bid price always sits below the ask price. In direct quotes, a higher ask means you pay more domestic currency to buy foreign currency. In indirect quotes, a higher bid means you receive more foreign currency when selling domestic currency.
Spread calculation remains the same regardless of type: ask minus bid. Major pairs usually show spreads below 1 pip during normal conditions. Exotic pairs and crosses often carry 3–10 pip spreads or more.
Traders watch the spread closely before entering positions. Wider spreads eat into potential profits, especially on small moves. Choosing brokers with competitive spreads matters greatly for frequent traders.
How Quotation Types Affect Trading Decisions
Direct quotes make it easier for local traders to calculate profit in home currency. A 100-pip move in USD/PKR directly translates to PKR profit or loss. This clarity helps beginners avoid conversion mistakes.
Indirect quotes dominate global platforms, so most educational material uses this format. Learning to read EUR/USD, GBP/USD, and USD/JPY prepares traders for the majority of market analysis available online.
Cross pairs allow hedging or speculation without USD exposure. They often move differently from dollar pairs, offering diversification benefits. However, lower liquidity can lead to slippage during fast markets.
Practical Examples from Major Pairs
EUR/USD at 1.0925 (indirect) means 1 euro buys 1.0925 US dollars. If it rises to 1.1000, the euro strengthened against the dollar. A long position profits.
USD/JPY at 148.50 (direct for Japanese traders, indirect for USD accounts) shows 1 USD buys 148.50 yen. A drop to 147.00 indicates yen appreciation.
GBP/AUD at 1.9500 (cross) reflects the pound’s value in Australian dollars without USD interference. These pairs react strongly to commodity prices and UK economic data.
Choosing the Right Quotation Display on Platforms
Most platforms let you switch display formats or add custom pairs. MetaTrader users can create cross rates manually if needed. Brokers often default to indirect for USD pairs.
Some brokers offer local currency accounts that automatically show direct quotes. This convenience reduces mental math for non-USD traders. Always confirm how profit and loss calculate in your account currency.
Demo accounts help practice reading different formats without risk. Switch between views to build familiarity quickly. Consistent exposure improves speed and accuracy over time.
Common Mistakes Related to Quotation Types
Confusing bid and ask direction causes wrong order placement. New traders sometimes buy at the bid price instead of the ask. Always double-check before confirming trades.
Misinterpreting cross pair movements without understanding the USD link leads to surprise losses. A rising EUR/GBP does not necessarily mean euro strength if both currencies move against USD similarly.
Ignoring spread differences between quotation types affects scalping profitability. Cross pairs with wider spreads demand larger moves to break even. Adjust expectations accordingly.
Tips for Working with Forex Quotations Effectively
- Always know your account currency to understand which pairs appear direct or indirect.
- Use five-digit pricing for precision on entries and stops.
- Watch spread changes during news releases to avoid bad fills.
- Compare the same pair across brokers to spot quotation display differences.
- Keep a simple cheat sheet of major pair types until the format feels natural.
These small habits reduce errors and build confidence. Regular practice turns quotation reading into second nature.
Impact of Quotation Types on Strategy Selection
Scalpers prefer tight-spread major pairs usually quoted indirectly. The smaller pip value allows frequent small wins. Cross pairs suit swing traders who target larger moves.
Carry traders favor pairs with high interest rate differences, regardless of quotation type. The format only changes how profit displays, not the underlying economics. Focus on fundamentals first.
News traders watch how quotation changes reflect economic surprises. Direct quotes show local impact clearly. Indirect quotes align with global headlines more often.
Evolution of Quotation Standards in Forex
Decades ago, quotations varied widely between banks and regions. The rise of retail platforms standardized indirect quoting for USD pairs. This shift improved global price transparency.
Electronic trading reduced quotation discrepancies between brokers. Real-time feeds now show near-identical prices on major pairs. Minor differences still exist on exotic and cross rates.
Future platforms may offer more customizable views. Some already let traders flip pairs with one click. Flexibility benefits traders in different regions.
Conclusion
Types of quotations in the forex market—direct, indirect, and cross—fundamentally shape how traders read prices and calculate profits. Each format offers practical advantages depending on your location, account currency, and trading style. Mastering these differences removes confusion, improves order accuracy, and helps select strategies that match real market behavior.
FAQ
What is the main difference between direct and indirect quotations?
Direct quotations show how much domestic currency buys one unit of foreign currency. Indirect quotations show how much foreign currency one unit of domestic currency buys. Most global major pairs use indirect format with USD as the quote currency.
Why do cross currency pairs not include the US dollar?
Cross pairs exclude USD to allow trading between two non-dollar currencies directly. Brokers calculate these rates using USD as an intermediary. They provide diversification away from dollar movements.
Which quotation type is most common on retail trading platforms?
Indirect quotation dominates retail platforms, especially for major pairs like EUR/USD and GBP/USD. This standard aligns with global interbank conventions. Direct quotes appear mainly for local currency pairs.
Does the quotation type affect my actual profit or loss?
No, the quotation type only changes how the price displays. Profit and loss depend on the pip movement and position size. The economic outcome remains identical regardless of format.
Can I switch between direct and indirect views on my platform?
Many platforms allow adding the inverse pair (for example, USD/EUR instead of EUR/USD). Some brokers offer account settings that default to direct quotes for local currency. Check your platform’s symbol search or settings menu.