DEFINITION of 'Indicative Quote'

In forex trading, an indicative quote is a currency quote that is provided by a market maker to another counterparty. However, this rate is not able to be dealt on. Hence the word indicative. In other words, when a market maker provides an indicative quote to a trader, the market maker is not obligated to trade the given currency pair at the price or the quantity stated in the quote.

Contrast this to a firm quote, in which a market maker guarantees a specified bid or ask price to a trader up to the maximum quantity specified in the quote.

BREAKING DOWN 'Indicative Quote'

Market makers will typically provide indicative quotes if a trader or client requests a quote for a currency pair but does not specify the quantity to be traded, or if there is some doubt as to the market maker's ability to transact the currency pair at the bid or ask quoted. Often times, corporate customers will have payments to make, but have flexibility around when they need to be done and will ask for indication rates before deciding whether or not to proceed with the trade. 

For example, a U.S. corporation looking to purchase $200 million euros to acquire a European asset. The interbank rate for EUR/USD is 1.1520/1.1525, the market maker could give the company an indicative rate of 1.1535 where they [the customer] could buy $200 million euro. From here the customer can either ask for a firm quote or pass and come back at a later date. 

Generally, clients will ask for indicative rates on large trades because there is more at stake for each pip, or small price movement. 

The bottom line is that clients and traders can rely on indicative quotes as a reasonable estimate of the exchange rate at which they can enter their currency trade, but there is no guarantee that this will be the rate they get.

 

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