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 maker’s selling rate (highest of the quote) and
can sell $1 at the market maker’s 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.
