A quote is the most recent market price that a financial instrument was traded on i.e., a buyer and a seller agreed to transact at a certain price, commonly known as the exchange rate.
Currency quotations appear in pairs. A Forex quote is usually given as GBP/USD = 1.5685. This means: 1 British pound equals 1.5685 U.S. dollars.
Forex prices are quoted to four or five decimal levels. Having a pricing that goes to the fifth decimal place has a few advantages, such as:
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:
1. Direct quote – price of a foreign currency is denominated in certain units of the national currency.
2. Indirect quote – price of the 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.