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Inverting FX Quotes: Mid Rates Versus Bid and Ask

Article Quant Q&A · Author: Roland
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Summary

The document asks how to convert a quoted exchange rate into its inverse, using a Thai baht to Swiss franc quote as an example. It distinguishes two needs: obtaining an inverse mid rate or constructing inverse bid and ask prices. The answer recommends taking the reciprocal of the quoted rate for the simpler mid-rate case and warns that handling bid and ask prices incorrectly can lose money through the spread.

The explanation is very brief and does not provide a bid-ask conversion formula or worked quote. In practice, a two-sided quote has different buy and sell prices, so the inverse sides must be handled consistently with the direction of the transaction. The document’s warning highlights that spreads matter when turning a mid-price into tradable prices, but its answer alone is insufficient to calculate an executable inverse quote safely.

Key ideas

  • The reciprocal of a quoted rate gives the inverse mid rate.
  • Bid and ask prices require separate treatment when a two-sided FX quote is inverted.
  • Ignoring the spread when calculating inverse tradable prices can cause losses.
  • The answer does not provide a full bid-ask conversion procedure.

Tags

ForexExecutionMarket microstructure
Full text
# How do I calculate the inverse rate of an exotic?


# How do I calculate the inverse rate of an exotic?












I'm getting my FX rate information from a provider that only provides me one direction THB => CHF.

Now I want to calculate the inverse: CHF => THB.

I see two possibilities:

- Take the middle of the rate THB => CHF and compute the inverse



What is the correct way? Consider two scenarios:

- I only want the middle of the rate

- I want the bid and ask

## Answer by arodrisa (score 1)

https://quant.stackexchange.com/a/32731

What you want is option 1 (simplier). In the other case you will loose money because of spreads

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.