How to Quote a Quote
For example, how to quote a quote properly for the offer side in the EUR/USD currency pair would be the exchange rate at which the market maker was willing to sell Euros and purchase U.S. Dollars in the amount that their client has expressed an interest in dealing.
When learning how to quote a quote professionally, most trainee market makers need to develop experience taking into account several important factors that might need to be reflected in their quotes. First of all, they need be familiar with and use the quoting conventions appropriate for their market. Next, they need to determine where the market in the security or currency pair is being quoted at other market makers, at well established brokers, on an electronic dealing platform or on an exchange traded market that they have access to in order to obtain a reference price.
In addition, they need to take into account the size of the transaction they are being asked to quote on. Especially large or small transactions tend to be quoted using a wider bid/offer spread around the reference price.
Another key item to take into account when quoting a price is the market maker’s view on whether the market is likely to rise or fall within the time frame that they anticipate holding the position that their client might deal with them. If they think that the market is likely to rise, then they might show their client a better bid but a higher offer than the reference price.
By InvestorGuide Staff
Posted in ...Investing