So the price taker may sell base currency at the bid price or buy it at the offer price.
The buying and selling price are quoted from the price maker's point of view. The market’s bid price comes before it’s offer price.
The bid price will always be lower than the offer price. So, where the bid/offer price is 1.5364 - 1.5368; the market buys at 1.5364 and sells at 1.5368.
The price difference - here, 0.0008 (8 points) is called the spread.
This spread will be a fractional amount of the exchange rate (in quoted currency terms) and the fractional amount is a number of points (or pips).
The whole number before the decimal place is called the big figure.
Inverse/reciprocal rates
Market quote conventions may be confusing to some of a bank’s clients. Say a client wants to move out of US dollars into Swiss francs. He has a certain amount of US dollars in mind to trade so asks his bank for the spot price of Swiss francs in dollars.
The market trades USD/CHF not CHF/USD. But as the client wants to buy francs with dollars, it may save the bank sales desk some time and effort to provide him with a quote which prices francs in terms of dollars.
To switch the market USD/CHF quote into a retail-friendly CHF/USD quote - to switch CHF into base currency quoted in USD - requires a very simple calculation.
For example, where we a assume a hypothetical exchange rate of USD/CHF = 1.3760 - 65. To switch the quote round:
1 / 1.3760 = 0.7267
the USD/CHF bid price inverts to become the CHF/USD offer price.
1 / 1.3765 = 0.7265
the USD/CHF offer price inverts to become the CHF/USD bid price.
The client can now be quoted CHF/USD = 0.7265 - 67. He will readily see that he can buy the Swiss franc for USD 0.7267, and then do a simple multiplication of rate by his chosen amount of USD to discover the total CHF amount he can buy.
This inverse quote is also known as the reciprocal quote because mathematicians call ‘one over’ your chosen number ‘the reciprocal value’.
