Interpreting Forex Quotes
How to interpret forex quote in the IB market?
$1 = Rs 40.2030/40.2031
Buy Rate (Bid Rate)/Sell Rate (Ask Rate)
i.In the IB market, market rate is quoted up to 4 places after decimal except for JPY (Japanese Yen) which is quoted only up to 2 places after decimal
ii.Market Maker – The bank which gives quote in the IB market
Market User – The bank which uses the quote for either buying or selling
The bank can either be Marker Maker or Market User
iii.Interpretation w.r.t. market maker
The market maker (or simply market) would always buy at LOW and sell at HIGH. In the above example, the market is ready to see $1 at Rs 40.2031 and at the same time the market is ready to buy $1 at Rs 40.2030
iv.Interpretation w.r.t. market user
The market user can only buy $1 at the market makers selling rate (highest of the quote) and can sell $1 at the market makers buying rate (lowest of the rate). The user can do this activity either for its own purpose or on behalf of the customer. When market user does this activity for his own purpose, it is called trading (or speculation) which may result into profit or loss. When this activity is done on behalf of the customer, then the bank will always make profit by loading Exchange Margin [EM].
v.The difference between Bid Rate and Ask Rate is called SPREAD. In the above example Spread is Rs 0.0001 (0.0001 = 1 PIP)
vi.The market convention is to write low rate on the L.H.S. and high rate on R.H.S.