Direct and Indirect Quotes in Forex: Whose Country Counts

Four published explanations of this pair of terms were read in full for this page. All four teach the same rule: a direct quote prices the foreign currency in domestic money, and an indirect quote does the reverse. None of them mentions that a trading platform applies neither rule, because the platform was never told which country the reader is sitting in.

The Quote on Your Platform Does Not Know Where You Live

Start with what a platform actually does. It lists a pair in one order, with one currency first and one second, and that order is the same for every account holder who opens the same symbol.

The order is a market convention attached to the pair itself. It was settled by the interbank market long before any retail account existed, and it does not consult the country a reader is trading from.

So the same quote is on the screen of someone in Tokyo and someone in Toronto at the same instant, in the same order, with the same currency as the base. Neither of them is looking at a direct quote or an indirect one, because the question has not been asked yet.

The label only attaches once a home currency is named. It is a property of the comparison a reader is making, not a property of the rate, and that is the step the published explanations leave out. Which currency the market puts first is covered separately on our page on which currency sits as the base.

What the Two Labels Mean, and What They Have to Be Told

The definitions themselves are not in dispute. A direct quote states how much home currency one unit of a foreign currency costs. An indirect quote states how much foreign currency one unit of the home currency buys.

Each is the reciprocal of the other, so no information is added or lost by switching between them. The same market condition is being described in both directions.

What the definitions require is an input the rate does not carry: whose home currency. Give the same quote to two readers in different countries and one of them is holding a direct quote while the other is holding an indirect one, with nothing about the number having changed.

This is why the terms belong to accounting, treasury and textbook exercises, where a reporting currency is fixed and stated in advance. In those settings the label is unambiguous and useful. On a trading screen no reporting currency has been declared, so the label has nothing to attach to.

Two Central Banks, Two Different Policies

None of the four explanations read here cites a source for any convention. Two central banks publish theirs, and they do not agree.

The Federal Reserve H.10 release carries the rule in its own heading: rates are given in currency units per US dollar, except where an entry is marked with an asterisk, and a marked entry is given as US dollars per currency unit instead.

On the current release four entries carry that mark. They are Australia, the EMU members for the euro, New Zealand and the United Kingdom. The US central bank therefore does not apply one national perspective across its own table; it follows the market convention for each currency and flags the ones that run the other way.

The European Central Bank takes the opposite approach. Its euro foreign exchange reference rates are published with every currency quoted against the euro as the base, with no marked exceptions, and set through a daily concertation procedure among European central banks that normally takes place around 14:10 CET.

Two official publishers, two policies, both stated openly. A reader who has been taught that the convention follows the home country has to explain why one of these two institutions marks four exceptions and the other marks none.

American Terms and European Terms Are a Different Axis

A second pair of terms circulates alongside the first, and the explanations tend to use them in the same breath.

American terms means the rate states how many US dollars one unit of the other currency costs. European terms means the reverse: how much of the other currency one dollar buys. Both are defined against the dollar and against nothing else.

That is a different axis from direct and indirect. One is anchored to the dollar, which is a fixed reference for everyone; the other is anchored to the reader’s home currency, which is different for every reader.

The two only coincide for someone whose home currency is the dollar. For everyone else they can disagree, and treating them as synonyms produces a contradiction that no amount of re-reading the definitions will resolve.

The four asterisked entries in the H.10 release are precisely the ones the market quotes in American terms, which is a fact about dealing convention among the ten currencies dealers mean by G10 rather than about anyone’s nationality.

What Changes for an Account When the Convention Flips

The label itself changes nothing about a position. What changes is where the arithmetic lands, and that is worth being precise about.

A result accrues in the second currency of the pair as quoted, since the price itself is denominated in that currency. Turn the pair around and the result accrues in what used to be the base, in a different currency, at a different scale.

That is also what drives the value of a one-pip move. The pip is a movement in the second currency, so what a pip is worth in the account currency depends on which currency is standing there and on the exchange rate between that currency and the account currency.

Position size interacts with the same thing, because the amount a lot represents is measured in the base currency of the symbol. Read a pair the wrong way round and the size and the result are both being computed in currencies that are not the ones on the ticket.

The Rates Every Explanation Invents

Every worked example across the four comparables uses a made-up rate. None carries a date, a source or a venue, and the reader is given no way to tell whether the number was ever real.

For an arithmetic demonstration that is defensible, since the point is the reciprocal relationship rather than the level. The problem is what some of the examples do to the pair itself.

Two of the four demonstrate the reversal by writing the dollar against the euro in the order no platform lists, and one builds an example on a pair between two currencies that are not conventionally quoted against each other at all. A reader who learns the reversal from those examples has been shown a screen that does not exist.

The reciprocal is real arithmetic. The instrument in the illustration often is not, and where an FX rate is actually discovered settles which orderings a market maintains a price for.

Which Way Round Your Own Account Reports

Three things settle this, and all three are visible without asking anyone. The symbol itself gives the order the market uses, first currency then second.

The account currency, set when the account was opened, is the one every result is finally converted into, and it is the closest thing an account has to a home currency.

The contract specification gives the size a lot represents and the currency the profit line is computed in before that conversion. Read those three together and the direct-or-indirect question answers itself for that account, without needing the label at all.

Where the three disagree is itself informative. An account funded in one currency, trading a symbol whose second currency is another, converts at the moment each position closes, and the rate used for that conversion is a second exchange rate the ticket never displays.

Who This Distinction Does Not Help

Anyone deciding what to trade, or when, gets nothing from it. The terms describe how a number is written down, not what the number is doing, and no reading of a quote becomes more or less favourable because of which label applies to it.

It also does not help anyone trying to work out which way a platform will list an unfamiliar pair. That is settled by dealing convention for the pair, and the fastest answer is to open the symbol and read the order the market already uses.