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Two-way prices are dual price quotations that include both an offer price and a bid price. This type of quote is commonly used in foreign exchange markets where investors engage in the buying and selling of currency. Banks also make use of a two-way price when calculating the current rate of exchange in order to conduct wire transfers of funds between various countries. A two-way price is also often employed with bond prices as well.
When it comes to Forex trading, a two-way price allows the investor to see what he or she will receive in the way of a return by purchasing or selling a particular set of currencies. The details of the proposed transaction will depend on the specific dealer who would handle the transaction, and the current rate of exchange that exists between the two currencies. Because the two-way price includes both an offer and a bid price, it is easy for the investor to determine if the proposed exchange is advantageous or should be avoided at the present time.
It is important to note that the bid and offer prices associated with any given foreign exchange quote are usually slightly different. Referred to as a spread, the difference between the offer and bid price in a two-way price strategy is usually identified in terms of pips. A pip is simply a fraction of a currency unit, with a single pip usually understood to be 1/100 of the current worth of the particular unit of currency.
In most cases, the spread between the offer and bid prices included in the two-way price will not amount to a great deal. But the difference between the two price components can be just enough to make it possible for an investor to either lose or gain from the transaction.
When quoting terms for a two-way price, there are some generally accepted procedures. Many currencies around the world are quoted based on the number of units required to equal one American dollar. However, this is not true with most of the other major currencies in circulation. Currencies such as the Euro, the Irish punt and the British pound are often quoted in terms of how many American dollars are required to equal one unit of the currency in question.