Direct answer
Indirect quotes can change quickly during volatile markets because the “rate you see” depends on continuously updated two-leg pricing, available liquidity, and the way orders are matched or filled. Volatility often causes liquidity to thin or withdraw, increasing the chances of temporary pricing gaps and delays. In practice, the displayed indirect rate may jump, refresh in steps, or differ from the rate used to execute an order.
Mechanism and definition
An indirect quote expresses an exchange rate through an intermediate pricing relationship rather than a single direct price. Conceptually, it is built from other market prices, and the final number you see is the result of combining those inputs.
During normal conditions, updates are frequent and liquidity is deep enough that the combined calculation stays relatively stable. In volatile markets, two things tend to happen:
- Input prices become less stable. If the underlying prices used to form an indirect quote move sharply, the combined result can move sharply too.
- Input updates arrive at different times. If different price inputs update with different timing (latency) or are temporarily unavailable, the indirect quote may be computed from “out-of-sync” information.
Evidence by example (with clear assumptions)
Assume an indirect quote is derived from two underlying components, A and B, that are normally updated in near real time. Suppose at time t0 both are consistent: the indirect rate uses A(t0) and B(t0).
Now assume volatility and that:
- A updates to a new level quickly at t1,
- B updates later at t2,
- and there is a brief moment when one input is stale or missing.
If the system recomputes the indirect rate whenever one input changes, you can see:
- a jump when A updates at t1 while B is still at its older level,
- a second change at t2 when B catches up,
- and potentially a gap if the computation cannot be produced during the missing period.
Even if the underlying “true” pricing is moving continuously, a displayed indirect quote can look discontinuous because it is reconstructed from discrete updates.
Material limitations and failure modes
Several limitations can cause indirect quotes to “change” in ways that do not represent a single smooth price series:
- Liquidity withdrawal: Market liquidity can thin quickly during stress, so fewer quotes are available and price providers may widen values or stop quoting temporarily.
- Latency and refresh timing: If components update at different moments, the recomposed indirect rate can reflect transient inconsistencies.
- Order handling differences: An indirect rate you see may not be the rate used at execution time. Execution can depend on matching rules, available counter-liquidity, and whether a fill occurs immediately or after a delay.
- Stale or missing data: If one input to the indirect calculation is delayed or temporarily unavailable, the indirect quote may update in steps, remain unchanged briefly, or show discontinuities.
Verification and next questions
To verify why an indirect quote changed, check these items on your chosen data source(s):
- Timestamps: Compare when each underlying component (or each quoted update) is time-stamped.
- Spreads and depth proxies: Look for widening or thinning signs around the change period.
- Stated execution time: If available, compare the execution timestamp to the quote timestamp.
Next questions to consider include: What exact inputs and timing are used to construct the indirect quote on your platform? Does the platform publish quote times and execution times separately? And how does it behave when one component is delayed or unavailable?