Percentage in point

In finance, specifically in foreign exchange markets, a percentage in point or price interest point (pip) is a unit of change in an exchange rate of a currency pair.

The major currencies (except the Japanese yen) are traditionally priced to four decimal places, and a pip is one unit of the fourth decimal point: for dollar currencies this is to 1/100 of a cent. For the yen, a pip is one unit of the second decimal point, because the yen is much closer in value to one hundredth of other major currencies.[1]

In the forward foreign exchange market the time value adjustment made to the spot rate is quoted in pips, or FX points or forward points.[2]

A pip is sometimes confused with the smallest unit of change in a quote, i.e. the tick size. Currency pairs are often quoted to four decimal places, but the tick size in a given market may be, for example, 5 pips or 1/2 pip.

Trading value

A rate change of one pip may be related to the value change of a position in a currency market. Currency is typically traded in lot size of 100,000units of the base currency. A trading position of one lot that experiences a rate change of 1 pip therefore changes in value by 10 units of the quoted currency or other instrument.[3]

Example

If the currency pair of the Euro and the U.S. Dollar (EUR/USD) is trading at an exchange rate of 1.3000 (1 EUR = 1.3 USD) and the rate changes to 1.3010, the price ratio increases by 10 pips.

In this example, if a trader buys 5 standard lots (i.e. 5 × 100,000 = 500,000) of EUR/USD, paying USD 650,000 and closes the position after the 10 pips' appreciation, the trader will receive USD 650,500 with a profit of USD 500 (i.e. 500,000 (5 standard lots) × 0.0010 = USD 500). Most retail trading by speculators is conducted in margin accounts, requiring only a small percentage (typically 1%) of the purchase price as equity for the transaction. The Japanese Yen is an exception to this rule because of its worth against the US dollar being 0.01 [4]

If the NZD/USD spot is trading at 0.8325 and the NZD/USD 1-year forward contract is traded at -270 pips, the outright 1-year forward is priced at 0.8055 (0.8325 - 0.0270).

Fractional pips

Electronic trading platforms have brought greater price transparency and price competition to the foreign exchange markets.[5] Several trading platforms have extended the quote precision for most of the major currency pairs by an additional decimal point; the rates are displayed in 1/10 pip.

Table of pip values

The table portrays pip values for selected currencies as used by Fenics MD[6] for their forward contracts or non-deliverable forwards.

CurrencyPip value
EURUSDUSD 0.0001
GBPUSDUSD 0.0001
USDJPYJPY 0.01
USDCADCAD 0.0001
AUDUSDUSD 0.0001
USDCHFCHF 0.0001
NZDUSDUSD 0.0001
USDDKKDKK 0.0001
USDSEKSEK 0.0001
USDNOKNOK 0.0001
USDHKDHKD 0.0001
USDBRLBRL 0.0001
USDCNHCNH 0.0001
USDCZKCZK 0.0001
USDHUFHUF 0.01
USDILSILS 0.0001
USDIDRIDR 1
USDINRINR 0.01
USDKRWKRW 0.01
USDMXNMXN 0.0001
USDMYRMYR 0.0001
USDNGNNGN 0.01
USDPLNPLN 0.0001
USDRONRON 0.0001
USDRUBRUB 0.0001
USDSGDSGD 0.0001
USDTRYTRY 0.0001
USDZARZAR 0.0001

See also

References
  1. Abdulla, Mouhamed (March 2014). Understanding Pip Movement in FOREX Trading (PDF) (Report).
  2. "Calculating fx forward points". Retrieved 11 December 2019.
  3. Archer, Michael D.; Bickford, James L. (May 25, 2005). Getting Started in Currency Trading: Winning in Today's Hottest Marketplace. Hoboken, New Jersey: John Wiley & Sons. ISBN 978-0-471-71303-6.
  4. https://www.referralforex.com/
  5. "Pips and Spreads Explained - Forex Trading Basics". www.forexbrokersreviews.com. Retrieved 2017-04-04.
  6. Fenics MD http://www.fenicsmd.com/products/rates/. Retrieved 16 March 2020. Missing or empty |title= (help)


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