Why traders need quotations: definition, types and peculiarities of application in trading
Quote is one of the main terms used by traders. It refers to the price of any exchange-traded asset - securities, commodities, currencies or precious metals. This value is constantly changing in the course of trading, since it takes into account the current offers from market participants - buyers and sellers.
Key features of a stock exchange quotation
Constant monitoring of the value of the assets of interest is the key to successful trading on any financial or commodity market. It helps to understand why a trader needs quotations, by studying the parameters that influence the value of a certain currency, commodity or stock. It is in constant motion, because the behavior of buyers and sellers depends on a number of factors. These include macroeconomic indicators, the results of the security's issuer and industry news.
In financial markets, quotes change many times during each trading session. The opening and closing levels of the exchange, and the maximum and minimum prices of the day, are regularly published by a quotation committee. Its main task is to control all transactions made by traders.
Varieties and rules for publishing quotations
There are several types of currency quotations:
Official - determined by a country's central bank, used for financial accounting, customs duties;
interbank - determined by major participants in the currency market with consideration of current supply and demand levels;
Exchange-based - formed by constantly collecting and comparing all bids to buy or sell a certain asset.
There are direct and reverse quotes on the currency market. The former represents the quantity of a particular currency in US dollars, while the latter represents the number of USD in the national monetary unit. If the two assets are not traded against each other, a cross rate is used - the ratio between them calculated by means of a prior conversion to the US dollar.
Quotations can be published as absolute and fractional values. The rules for displaying them depend on the specifics of the exchange. The Forex market normally uses a four decimal place notation. With this rounding off, traders can quickly work with the current rates. Quotation lists are accessible for all traders. Each of them selects the assets of interest to obtain information on their current prices, transaction volumes and other relevant information.