Currencies can be quoted in a couple of ways: direct and indirect. The only difference between these two types is the position of domestic currency in the pair. In direct currency quote the domestic currency is quoted as base currency while in indirect way of currency quote the foreign currency is represented as base currency. Due to the difference in position the value of these currencies also fluctuate. It means that the value of base currency always remain fixed while the foreign fluctuates accordingly. So in case of direct quote the domestic currency will remain fixed and foreign will vary in value while in indirect quote foreign currency will remain fixed and domestic has to vary accordingly.
Consider the following examples to understand the difference between direct and indirect currency quotes: (USD as domestic currency)
Direct Currency Quote: USD/CAD = 1.19
Indirect Currency Quote: CAD/USD = 0.84
In first example the domestic currency (USD) is represented as base currency and JPY as quoted currency so the value of USD will remain fixed and JPY will fluctuate accordingly. It means that 1 USD will purchase 1.19 CAD. In the second example the foreign currency (CAD) is quoted as base currency so its value remains fixed and USD will fluctuate. In this example 1 CAD will purchase 0.84 USD.
If you see the main currency pairs traded in forex market then you will notice that most of the pairs have USD as base currency but Queen’s currencies including British Pound, Australian Dollar and New Zealand Dollar which have strong relation with Great Britain can be quoted as base currencies against USD.
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