How are the Forex quotes formed?
A quote is an indicator of the goods value, in this case — a particular currency. Banks are virtually the only sources of currency rates or currency exchange rates in the Forex market. The other subjects of the financial sector only retransmit the data set by banks.
Quotes can be:
- direct – the ratio of the U.S. dollar and certain currencies, for example USD/EUR;
- reverse – reverse ratio or how much $ are in the unit of a certain currency (EUR/USD);
- cross rate – the ratio of pairs of different currencies among themselves after bringing their courses to a third currency, usually the U.S. dollar.
The quotations formation is carried out by the means of communication tools: telephone, Internet, vending terminal, etc. Bank issues appropriate courses to buy or sell a currency on the basis of aggregate data of the currency values from various market makers. This is a so-called indicative quote. In transactions with their clients, banks may change the established rates depending on the degree of the client's risk, a type and a scope of an operation or the intended value date.
Indicative quotations and courses used in the real deals of the largest banks, are directed to a special information centres (Dow Jones, CQG, Reuters, etc.), and then broadcasted around the world to the subjects of the currency market connected to them. Each information center receives information from different sources. That is the reason for slight variances between quotations from different systems that can reach dozens of the period points of the greatest market fluctuations. However, the quotes of each information system correspond to average indicators in the international market.
Brokers can get information from several systems and provide its clients with the general market indices of quotations, their own quotations, and the quotes for internal transactions.