Direct answer: what “measuring indirect quotes” means
Measuring indirect quotes means turning a displayed market quote into a set of explicit, checkable data fields. You should be able to state: which currencies the quote is for, which side is bid/ask (or mid), the numerical value and pip definition, and the timestamp of when that quote was produced or last updated. Then you can define how you will transform that quote into a comparable quantity (for example, converting to another representation using stated assumptions).
Mechanism and definition: the measurable fields
An indirect quote is typically the expression of one currency value in terms of another (for example, “quote currency per one unit of base currency”). To measure it consistently, define measurable fields before doing any comparison:
- Instrument identity: the currency pair and the direction (which currency is base, which is quote). Without direction, numeric values can be misinterpreted.
- Quote side: whether the number is bid, ask, or a derived mid. Bid/ask differences (the spread) matter for any measurement that is sensitive to cost.
- Numerical value and unit: the displayed rate and the pip convention you assume (for instance, pip size commonly depends on whether the pair is quoted to 4 or 5 decimals). State the pip size you will use.
- Timestamp: the time the quote was generated or last updated, including timezone or an unambiguous clock source. Quotes are time-dependent; a measurement without time context is hard to verify.
- Quote basis / transform rules: if you will compute a derived value (like converting one representation into another), specify the formula you use and any assumptions (such as using the same timestamp for all inputs).
A practical way to “measure” is to record these fields exactly as observed, then apply your transformation rules step-by-step using only the recorded inputs.
Evidence and example: build a reproducible measurement
Assume you observe an indirect quote for a pair at a stated timestamp, and you want to compare it to another representation.
Example (illustrative, not real-time data):
- Record the quote fields: pair direction, bid/ask selection, numeric rate, pip size, and timestamp.
- Choose the transformation you want to measure. For instance, if you want the inverse representation, you can define a rule such as: inverse_rate = 1 / original_rate.
- Compute any derived quantities explicitly (including rounding). If you compute pip differences, use the pip size you stated.
- For verification, your steps should be independently reproducible from your recorded fields.
This approach makes the measurement about defined fields and defined transformations, not about trusting that two numbers are comparable without aligning conventions and time.
Limitations and risks: what can break the measurement
Even with careful definitions, comparability has material limitations:
- Stale or asynchronous updates: two providers may publish different timestamps for related quotes. If you compare values at different moments, the measurement may reflect movement rather than a quote-convention difference.
- Bid/ask mismatch: comparing a bid from one source to an ask from another can create an apparent discrepancy that is only spread-related.
- Different conventions and rounding: pip size assumptions, decimal formatting, and rounding can change computed differences.
- Transformation assumptions: derived comparisons (like inverses or cross conversions) can fail if you use inputs taken at different times or if your formula does not match the quote provider’s internal convention.
Historical relationships between representations do not guarantee future equivalence, and outcomes vary with market conditions, costs, execution, and jurisdiction.
Verification and next question: how to check your understanding
To verify your measurement independently:
- Reconstruct the derived value from the recorded fields using your stated formula.
- Confirm that the quote direction and bid/ask side match your intended comparison.
- Check timestamp alignment: if timestamps differ, document that your comparison is “as observed,” not “synchronized.”
Next, consider whether you want to measure raw quotes (recorded fields only) or derived comparisons (requires explicit transformation rules and synchronized inputs).