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 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.