Indicative prices reflect a price of market consensus from various data brokers and dealers. The price could reflect either the median (the quantity of brokers/dealers that represent the most common price), the average price, or all prices (regardless of bid or ask).

Indicative prices visually can be seen as very “noisy” as compared to other price formats. If you were to look at a candlestick chart that displayed indicative history you would notice that the candlestick bodies would be smaller while the wicks from both ends would be longer as compared to other “normal” charts.

What are the problems associated with indicative data?

The primary problem associated with indicative data is that it does not accurately represent the actual history of the forex market from your forex broker.

This is important.
If you were to design a system that relied on stop and limit orders you would want to know if your forex broker would have execute your order at those prices. If the data you test on does not reflect what you forex broker would have quoted then the results you receive will be worthless - as some (or all) of your trades would not have been transacted in real life anyway!

I personally have tested a forex system using indicative data, and when I went to trade the forex system using live intraday indicative data I found that when I compared my ACTUAL trading results to the indicative data backtested results they were completely different.

What should I do if I have indicative data?

I know for myself personally that it was a waste of money. You can try and ask for a refund, but I wouldn’t get any hopes on seeing anything back. The best thing to do would be to do as I did - just move on and throw it in the bin and warn as many other budding forex traders about the dangers of such useless data.
The only real benefit (if you can call it that) is indicative pricing is cheap - so you’ve probably only lost a small amount of capital.

What is a better alternative?

We all know that it’s important to test our system on some forex history, it just comes down to what type of forex history. Besides indicative prices we have bid, ask and mid-prices… so what do we choose from?

To be honest, either of the three doesn’t matter. They all represent the same thing just in a slightly different manner.
The bid price would obviously represent the bid price of the broker at that point in time, likewise the ask price (it would represent the asking price of that currency pair at that point in time). The mid prices represent the middle price of both the bid and ask prices. All you need do is find out your broker’s spread for the currency you’re testing and you’ll have a rough representation of what the bid and ask price of that currency would have been at that point in time.

As a quick example: If I had the bid price of the EURUSD at 1100 EST on 1 April 2004 as 1.2432, and my broker has a 4 pip spread on the EURUSD cross then I’ll know that if my system were to buy the currency at that same point in time it would hit the asking price of 1.2432 + 4 pips = 1.2436.
Easy huh!

Conversely, if I had the ask price of the EURUSD at 1.2445 then I know that if my system were to sell (or go short) at that same point in time then I would know that the bid price would be 1.2445 - 4 pips = 1.2441.
Lastly, if I had the mid price of the EURUSD at 1.2452 then I know what the bid and ask prices would represent. The bid price would be 2 pips lower at 1.2450, and the ask price would be 2 pips higher 1.2454.

It therefore is a matter of preference on what you choose. I personally prefer bid prices, but that’s mainly due to the fact that I can wrap my head around it much quicker and easier. Some forex traders that I know seem to prefer the mid prices as they can easily incorporate the spread into their performance.).
I hope this article has been beneficial in showing you the importance of why all forex historical data is not created equal!

If you do wish to use indicative prices be very cautious with the results and double your slippage settings (at least).