Indicative Quote
What is an Indicative Quote?
An indicative quote is a reasonable estimate of a currency's current market price that is given by a market maker to an investor upon request. Nonetheless, this rate can't be managed on, subsequently the word indicative.
All in all, when a market maker gives an indicative quote to a trader, the market maker isn't committed to respect the price stated in that quote if the counterparty decides to transact in that currency pair.
Grasping Indicative Quote
Market makers will regularly give an indicative quote if a counterparty, typically a trader or client, communicates an interest in dealing in a currency pair, however gives no extra data, for example, the volume to be transacted. Dealers may likewise give indicative quotes assuming unpredictable market conditions limit their ability to transact at the common market rates for that currency. The key point to note is that the market maker isn't committed to respect an indicative quote.
Generally. customers will request quotes to get a thought of where a currency is trading at before they settle on a choice to act. This is particularly true for large trades since there is more in question at each incremental cost movement, or pip.
What they look for is an estimation, yet one that is genuinely accurate, of a currency pair's market rate. Since the customer has communicated an interest to transact, a dealer will give them the best, non-guaranteed quote of where that currency pair can be bought or sold. In market speech, this is known as an indicative quote
An indicative quote is in direct difference to a firm quote. With this type of quotation, a dealer states the price, volume and whatever other subtleties that are relevant to finish up a transaction. It is non-negotiable and guaranteed, implying that it will be respected if the counterparty decides to transact on this quote.
Illustration of an Indicative Quote
A U.S. corporation is going to procure a french company for \u20ac200 million Euros. They request a quote to check the amount of [U.S. Dollars](/usd-US dollar) that will be required to have been exchanged to complete this transaction. The interbank rate for EUR/USD is 1.1520/1.1525, implying that 1.1525 USD will be expected to buy one EUR. The market maker, aware of the company's interest in buying a large amount of Euros, quotes them an indicative rate of 1.1535. From here the customer can either ask for a firm quote or pass and return sometime in the not too distant future.
The bottom line is that traders can depend on indicative quotes to get a smart thought of the exchange rate at which they can enter a foreign exchange transaction, however there is no commitment from the market maker to respect these quotes.
Features
- The key point to note is that the market maker isn't committed to respect an indicative quote.
- An indicative quote is a reasonable estimate of a currency's current market price that is given by a market maker to an investor upon request.
- An indicative quote is in direct difference to a firm quote, which is guaranteed by the market maker.
