A Two-way quotation refers to the type of quotation that provides both the buying and selling prices of securities.
The bid price is the highest price a buyer (or buyers) is willing to pay for a particular security, while the ask price is the lowest price a seller (or sellers) is willing to sell the same security.
Two-way quotation is usually expressed as “Bid/Ask“.
Two-way quotes are common in most financial markets, including the stock market and the foreign exchange market, and they provide traders with important information about a security’s liquidity and spreads.
For example, if you see a two-way quote for a stock as $50/$50.10, it means that the highest price buyers are willing to pay for the stock (buy price) is $50, and the lowest price sellers are willing to pay is $50 Sell shares at (ask price) $50.10.
Let’s take the EUR/USD currency pair as an example. In Forex, a two-way quote might look like this: 1.1856/1.1858.
Here, 1.1856 is the buying price and 1.1858 is the selling price.
What this offer means is that you can sell 1 Euro for 1.1856 USD and you can buy 1 Euro for 1.1858 USD.
The difference between two prices, in this case 0.0002 (or 2 “pips”), is called the spread.
The goal of a Forex trader is to profit from small fluctuations in exchange rates, and spreads are essentially transaction costs – a cost that needs to be overcome to achieve a net profit.
Spread reflects the supply and demand dynamics of a security.
A Small spreads indicate high liquidity, which means there are many buyers and sellers and the market is more efficient.
Conversely, large spreads indicate lower liquidity, meaning the market for the security is likely to be less efficient.
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