A two-way quote refers to a type of quote that provides both the bid price and the ask price of a security.
The bid price is the highest price that a buyer (or buyers) is willing to pay for a particular security, while the ask price is the lowest price at which a seller (or sellers) is willing to sell the same security.
A two-way quote is typically represented as ‘bid price / ask price‘.
Two-way quotes are common in most financial markets, including the stock market and the forex market, and they provide traders with important information about a security’s liquidity and spread.
For example, if you see a two-way quote for a stock as $50 / $50.10, it means that the highest price a buyer is willing to pay for the stock (bid price) is $50, while the lowest price a seller is willing to sell the stock for (ask price) is $50.10.
Let’s take the EUR/USD currency pair as another example. In forex, a two-way quote could look something like this: 1.1856/1.1858.
Here, 1.1856 is the bid price and 1.1858 is the ask price.
This quote means that you can sell one Euro for 1.1856 US dollars, and you can buy one Euro for 1.1858 US dollars.
The difference between the two prices, in this case, 0.0002 (or 2 “pips”), is known as the spread.
Forex traders aim to profit from these tiny fluctuations in exchange rates, and the spread is essentially the cost of trading – a cost that needs to be overcome to achieve a net profit.
The spread reflects the supply and demand dynamics of the security.
A small spread indicates high liquidity, meaning there’s a large number of buyers and sellers, resulting in a more efficient market.
Conversely, a large spread suggests lower liquidity, implying the market for that security may be less efficient.