What's the difference between direct and indirect FX pairs?

Hi John,

As you probably know already, Forex trading involves trading currencies from different countries. This means that you’re not trading an individual currency, you’re actually trading currency pairs such as - USD/EUR, USD/GBP, EUR/CHF and so on. The price of a currency pair refers to what is known as a “quote”. So when you’re trading currency pairs, they’re displayed with their respective currency symbols and a current price. For instance, the Us Dollar to British Pound currency pair is shown as USD/GBP - 0.81. 

The number 0.81 means that one US dollar is worth 0.81 British pounds. The first currency in the pair, in this example its USD, refers to the accounting or domestic currency. The second currency in the pair, GBP in this instance, represents the named quote currency. Understanding this will help you break down the definition of FX direct quotes. 

Depending on where you’re based and what’s your national currency, every quote can be direct and indirect at the same time. 

A direct FX quote tells you how many foreign currency units could be purchased for a single unit of your local currency. It’s a bit easier to understand direct quotes as they’re used by traders who want to sell foreign units for their national currency. 

Indirect FX quotes are just the opposite of direct pairs. In other words, indirect quotes represent the value of your local currency in a foreign one.

Let’s use the example from above once again, USD/GBP - 0.81. If you’re based in the UK, where GBP is the local currency, this currency pair means that 1 USD is sold for 0.81 British pounds and that’s an indirect quote. On the other hand, if you were based in the US, this same quote would be direct for you.