Key takeaways
– An indirect quote (also called a quantity quotation) expresses how much foreign currency is required to buy one unit of the domestic currency.
– It is the reciprocal of a direct (price) quote. If 1 unit of foreign currency costs X units of domestic currency (direct quote), then 1 unit of domestic currency is worth 1/X units of foreign currency (indirect quote).
– Knowing whether a quote is direct or indirect is essential for computing cross rates, interpreting currency moves, and avoiding pricing errors.
– Practical steps: identify which currency is domestic, invert quotes when needed, account for bid/ask inversion, and use consistent conventions when calculating cross rates.
What an indirect quote is
An indirect quote places the domestic currency as the base and expresses the number of units of foreign currency required to buy one unit of the domestic currency. Because it tells you the quantity of foreign currency per one unit of domestic currency, it’s sometimes called a “quantity quotation.”
For example, if you are in Canada and the U.S. dollar trades at USD 0.8000 per CAD 1, that is an indirect quote in Canada (1 CAD = 0.8000 USD). From the U.S. perspective, the conventional quotation might instead be CAD 1.2500 per USD 1 (USD/CAD = 1.2500), which is indirect from the U.S. vantage but direct for Canadians.
Indirect vs. direct (reciprocal) — general rule
– Let D be domestic currency, F be foreign currency.
– Direct quote (domestic perspective): 1 F = X D
– Indirect quote (domestic perspective): 1 D = 1/X F
So indirect_quote = 1 / direct_quote (and vice versa).
How indirect quotes work in forex — numeric examples
Example 1 — USD/CAD and Canadian view:
– Market conventional quote: USD/CAD = 1.2500 (1 USD = 1.2500 CAD).
– From a Canadian (CAD domestic) perspective, the indirect quote is: 1 CAD = 1 / 1.2500 = 0.8000 USD.
– If USD/CAD moves to 1.2300 (USD is weaker vs CAD), the indirect quote becomes 1 CAD = 1 / 1.2300 ≈ 0.8130 USD. A higher inverted value (0.8130 > 0.8000) means CAD now buys more USD: CAD has strengthened.
Interpreting movements in indirect quotes
– In an indirect quote, a lower quoted number means the domestic currency is weakening (you need fewer units of foreign currency to buy one unit of domestic currency). Conversely, an increasing indirect rate reflects domestic currency strength.
– Always reason from the domestic currency’s perspective: ask “how many foreign currency units for 1 domestic unit?”
Navigating currency cross rates — practical formulas and example
When prices are quoted versus a common currency (often USD), compute cross rates carefully and pay attention to which quotes are direct or indirect.
Useful cross-rate formulas (consistent notation)
– If you have USD/JPY = A (i.e., 1 USD = A JPY) and USD/CAD = B (1 USD = B CAD), then:
• CAD/JPY = USD/JPY ÷ USD/CAD = A ÷ B (gives how many JPY per CAD)
• JPY/CAD = USD/CAD ÷ USD/JPY = B ÷ A (gives how many CAD per JPY)
– General approach: express both currencies relative to the same third currency, then divide.
Worked cross-rate example (from the source values)
– USD/JPY = 100
– USD/CAD = 1.2700
– CAD/JPY (conventional quote) = USD/JPY ÷ USD/CAD = 100 ÷ 1.2700 ≈ 78.74 JPY per CAD
– From the Japanese perspective (JPY domestic), 1 JPY = USD/CAD ÷ USD/JPY = 1.2700 ÷ 100 = 0.0127 CAD
Practical steps for traders — checklists and worked calculations
1. Identify the domestic currency
• Determine whose perspective you’re using — which currency’s value would you report per one unit?
2. Identify quote convention and notation
• Confirm which currency is the base and which is the counter in the quoted pair.
3. Convert between direct and indirect
• If needed, invert: indirect = 1 / direct. When inverting a bid/ask pair, invert each and swap sides:
• Inverted bid = 1 / original ask
• Inverted ask = 1 / original bid
4. Compute cross rates
• Convert both currencies to a common third currency then divide (see formulas above).
• Mind quote direction and invert as necessary before dividing.
5. Interpret movements
• In an indirect quote: decreasing number → domestic weakening; increasing number → domestic strengthening.
6. Account for bid/ask spreads, commissions, and rounding
• Triangular arbitrage opportunities are impacted by spreads; use the bid/ask inversion rules in step 3 to compute realistic executable cross rates.
7. Watch market conventions
• Some currencies (EUR, GBP, AUD, NZD) are frequently quoted in certain ways around USD and other majors — check conventions to avoid confusion.
Bid/ask inversion — example
– Suppose the market quotes EUR/USD bid/ask = 1.0500 / 1.0502 (1 EUR costs 1.0500–1.0502 USD).
– If you need USD/EUR (the reciprocal pair), invert and swap:
• USD/EUR bid = 1 / 1.0502 ≈ 0.9523
• USD/EUR ask = 1 / 1.0500 ≈ 0.9524
– Note: bid/ask swap occurs because the trader selling one side becomes the buyer in the inverted quote.
Common pitfalls and tips
– Not recognizing which currency is domestic can flip your interpretation of movement.
– Forgetting to invert bid/ask correctly leads to mispricing and possible losses.
– Many brokers and platforms display market conventional pairs, not necessarily direct/indirect from your home-country perspective — don’t assume.
– For cross-currency trades, always base calculations on executable bid/ask to account for spreads and avoid theoretical arbitrage claims.
Is there another name for an indirect quote?
– Yes. It is commonly called a “quantity quotation” because it states the quantity of foreign currency per one unit of domestic currency.
What is the opposite of an indirect quote?
– The opposite is a direct quote (also called a “price quotation”), which expresses the price of one unit of a foreign currency in terms of a variable number of units of the domestic currency. They are reciprocals of one another.
The bottom line
An indirect quote expresses how many units of foreign currency are needed to buy one unit of the domestic currency. It is the reciprocal of a direct quote. Traders must know which quote convention is being used, correctly invert rates (including bids/asks), and carefully compute cross rates to price transactions and interpret currency movements correctly.
Source
– Investopedia — “Indirect Quote.” (accessed via user-provided URL).