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What does handle mean in different markets, and how is it used?

Varro Nery by Varro Nery
1 year ago
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What does handle mean in different markets, and how is it used?
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The handle and the price quotes

The handle is simply the whole number or numbers of a price quote on the left of the decimal point. Let us say that the price quote is $123.45. The handle is $123, and we do not include the decimals or the cents. In futures and equities market, people call the handle the “big fig” or the “big figure.”

 

On the other hand, the handle might mean different in other markets. In foreign exchange markets, handle means the part of the price quote you can see in the bid and offer for the currency. Let us say that we have a EUR/ USD currency. The bid is 1.2345, and the ask is 1.2356. What is the handle in this case? It is the part of the quote which is the same for both bid and ask. It is 1.23.

 

Tell me more about the handle.

Have you noticed that traders only use the price quotes handle? Why? There is an assumption that other market participants are already aware of the quote’s stem. Let us say that S&P future trade at $1234.56. Traders will most likely say refer to the handle as 1234 instead of the whole thing. In fact, they would only use the 34 sometimes as the handle. So, if the price increases to $1239.40, traders can say that the index increased by five handles.

 

We mentioned earlier that it is not the same for foreign exchange markets, and we will explain how it works. In forex, we call the minimum price movement “pip.” If you observed how forex instruments are quoted, you would see that they use four to five decimal places. However, some prefer simple. Hence, they would only mention two decimal places regarding the bid and ask. It seems like saying the handle is not that relevant because most participants are already aware of it.

 

The role of handles in forex markets

There is a massive amount of transactions daily in foreign exchange. It is because countries have different currencies. When one country interacts with anything beyond its jurisdiction and currency, there will always be foreign exchange. It can be from simple things like travelers who exchange currencies at the airport when they go on vacations to giant corporations paying billions. We can also look at imports and exports, speculative investment positions without underlying goods and services. The modern world and technology made a considerable contribution to the increase of forex transactions.

 

The spot market, forwards market, stems, and handles

We have mentioned many things about the foreign exchange market. We also have other markets that use the handle, such as the spot and the forward markets. First, spot markets are more on financial instruments like commodities and securities. As the name suggests, we can trade them on the spot. They depend on the spot or current market prices. Next, we have the forwards market, and it is quite the opposite. It is more on prices at a future date. Both markets are different, but they share something in common. Their participants should know the use of the handle and the stem of the price quote.

 

The highlights

The handle, also famous as a big figure, is found on the left of the decimal point of the price quote. It helps in quickly knowing the general price level of indices and securities. In the forex market, handles contain both the dollar amount and numbers to the right of the decimal point — they appear on each side of a two-way quote.

Varro Nery

Varro Nery

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