Among various trading terminology, there is always a widely used term the meaning of which is not completely clear. The word “quotes” is probably the most popular of such terms. Although this is a rather common concept, it is always surrounded by doubts and confusion, especially among beginners. Some traders use this word to talk about currency rates while others mean broker fees.

This confusion arises from the fact that the price of an asset may differ greatly depending on the online trading floor. This variety of quotes raises discontent among traders who think that brokers are trying to deceive them. Yet, this is not really true. So, how are quotes being formed? Let’s find out below.

What is a quote?

A quote is a constantly changing price that has been agreed between a buyer and a seller. A quote is the main indicator of an asset’s value in the forex, stock, and commodities markets.

Market quotes can be direct or indirect. A direct quote is typically used for denoting the value of commodities and securities per unit. An indirect quote is usually used on Forex and expresses the variable amount of foreign currency required to buy or sell one unit of the domestic currency.

A quote can be an integral number or a fraction where a numerator expresses the value in a certain currency and a denominator shows the traded asset in its typical measurement (liters, kilograms, meters). In the foreign exchange market, the fraction shows what amount of the national currency is required to buy 1 US dollar and vice versa.

Before reaching the trading platform on your computer, quotes go through a chain of calculations with the following stages:

  1. online trading floors (a stock exchange for securities and futures and the interbank market* for currencies);
  2. certified liquidity providers* who take quotes from these platforms;
  3. brokers’ data center;
  4. finally, quotes are displayed on your personal trading platform.

As you can see, this is a multi-stage and time-consuming process. Today, brokerage firms try to minimize the delay in receiving quotes for the sake of their customers’ convenience.

*The interbank market is a kind of virtual exchange where large financial institutions, including banks and funds, trade directly between themselves.

*Liquidity providers on Forex are international banks, funds, and other financial institutions that act as professional market makers that connect the opening and closing of every forex transaction. A liquidity provider is an intermediary between a trader and a forex broker. Read about the most reliable liquidity providers on InstaForex website.

In the securities market, a “stock quote” means the price available for all traders. As for bond quotes, they are usually expressed as a percentage of the bond’s par value.

What you should know about quotes

  1. An accurate quote is something a trader can only dream of. Besides, the word “accuracy” can hardly go together with the concept of a quote since it is a constantly changing indicator that is formed by the ratio of supply and demand.
  2. Market quotes are determined by various external factors such as financial and economic indicators, social changes, or political news. You can monitor the fluctuation in the price of financial assets in real time on the InstaForex online charts.
  3. In most cases, quotes are expressed in 4 digits after a decimal point. The last digit is called a pip. So the price change from 1.3300 to 1.3301 is equal to one pip. Some brokers use a five-digit quote.
  4. The Japanese yen is different from other currencies. For all currency pairs, a pip is the 4th digit after a decimal point while for the yen, it is the second digit.
  5. Quotes can be dealing or indicative. Dealing quotes are real quotes used on live accounts, while indicative quotes are approximate quotes used on demo accounts.

Get to know the basics of the market quotes in the online quotes section of InstaForex website.

Conclusion

Trading in financial markets requires persistence and enterprise as well as good knowledge of key concepts and terminology. Understanding the principles of quotes formation is one of such necessary skills. Solid knowledge and relevant experience in this sphere enable traders to become real professionals and get a steady profit. In addition, understanding quotes sets the ground for high-yield investment choices and, consequently, for increasing your income. The ability to analyze and predict future quotes is a key to success for a trader in any of the markets.