Indicative Quote
What Is an Indicative Quote?
An indicative quote is a price estimate provided by a market maker or broker that is not a firm commitment to trade, used to give investors a general idea of the market price.
An indicative quote (often marked as "Ind" or "For Info") serves as a ballpark figure for what a security might be worth. Unlike the firm quotes you see on a live stock exchange (Level 1 data), which are actionable orders waiting to be filled, an indicative quote is essentially a broker saying, "I think it's trading around here, but let me check." This distinction is vital. In highly liquid markets like US equities, almost all quotes are firm. If you see a bid of $100.00, you can hit it. However, in fragmented or opaque markets—like corporate bonds, structured products, or interbank forex—dealers provide indicative pricing to broadcast liquidity without exposing themselves to risk. If you try to trade on an indicative quote, the dealer may come back with a "re-quote" or reject the trade if the market has moved.
Key Takeaways
- It is for informational purposes only, not a binding offer.
- Contrast with a "firm quote," which must be honored.
- Common in illiquid markets (bonds, exotic derivatives, forex).
- Used to gauge market value before placing a real order.
- May differ significantly from the actual execution price.
Where Indicative Quotes Are Used
Common scenarios for non-firm pricing:
- **Bond Markets**: Most bonds trade OTC. Screens often show indicative prices from yesterday or modeled estimates, not live bids.
- **Forex**: In fast-moving markets or for large sizes, a screen price might be indicative until a "Request for Quote" (RFQ) is sent.
- **Pre-Market/After-Hours**: Quotes shown before the open are often indicative of where the "opening cross" might happen.
- **Structured Products**: Complex derivatives are priced by models, providing indicative values for monthly statements.
Indicative vs. Firm Quotes
Understanding the difference saves money.
| Feature | Indicative Quote | Firm Quote |
|---|---|---|
| Actionable | No | Yes |
| Risk to Dealer | None | High (must honor price) |
| Market Type | OTC, Bonds, Illiquid | Exchange-traded, Liquid Stocks |
| Purpose | Information / Estimate | Execution / Trade |
Real-World Example: Buying a Corporate Bond
You see a High Yield Corporate Bond listed on your broker's platform with a price of $98.50. You place a "buy" order. Suddenly, the order status changes to "Pending Dealer Review." A minute later, the broker responds: "The price is actually $99.00. Do you still want to buy?"
Dangers of Indicative Pricing
Relying on indicative quotes can lead to "valuation illusions." An investor might look at their portfolio of illiquid assets and think they are worth $1 million based on indicative marks. However, if they tried to liquidate everything today, they might only get $900,000. This gap is liquidity risk. In times of crisis, indicative quotes often freeze or vanish, leaving investors "flying blind" on the true value of their holdings.
FAQs
Because in many markets, there is no live, continuous trading. Showing a "last traded price" or a "model price" is better than showing a blank screen. It gives investors a reference point, even if it's not perfectly accurate.
Yes, as long as it is not misleading. Regulators require brokers to clearly distinguish between firm and indicative quotes to prevent "bait and switch" tactics.
It is a synonym for indicative. It means the quote is "subject to confirmation" or "subject to availability." It is not a firm offer.
You usually have to initiate a trade process, such as sending a "Request for Quote" (RFQ) to multiple dealers. They will respond with firm, actionable prices valid for a few seconds.
The Bottom Line
Indicative quotes are the map, but firm quotes are the terrain. In the vast world of Over-the-Counter (OTC) trading, they provide essential visibility into markets where transactions are sporadic. For the retail trader moving from stocks (where prices are firm) to bonds or forex, understanding this distinction is critical to avoiding frustration and slippage. Always treat an indicative quote as an estimate. When trading illiquid assets, assume the execution price will be worse than the indicative price (higher when buying, lower when selling). This "haircut" is the cost of liquidity. Investors looking to [trade bonds] should always verify the firm price before committing capital.
Related Terms
More in Market Data & Tools
At a Glance
Key Takeaways
- It is for informational purposes only, not a binding offer.
- Contrast with a "firm quote," which must be honored.
- Common in illiquid markets (bonds, exotic derivatives, forex).
- Used to gauge market value before placing a real order.