View source for Finance:Percentage in point

{{short description|Currency exchange rate fluctuation}}

In [[Finance:Foreign exchange market|foreign exchange market]]s, a '''percentage in point''' ('''pip''') is a unit of change in an [[Finance:Exchange rate|exchange rate]] of a [[Finance:Currency pair|currency pair]].

The major currencies (except the [[Finance:Japanese yen|Japanese yen]]) are traditionally priced to four [[Decimal|decimal]] places, and a pip is one unit of the fourth decimal place: for dollar currencies this is to 1/100 of a [[Finance:Cent (currency)|cent]]. For the yen, a pip is one unit of the second decimal place, because the yen is much closer in value to one hundredth of other major currencies.<ref>{{cite report|last=Abdulla|first=Mouhamed|title=Understanding Pip Movement in FOREX Trading|url=http://drmoe.org/misc/ForexPip.pdf|date=March 2014|access-date=2014-03-26|archive-date=2020-03-31|archive-url=https://web.archive.org/web/20200331141930/http://drmoe.org/misc/ForexPip.pdf|url-status=dead}}</ref>

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.<ref>{{cite web |title=Calculating fx forward points |url=https://www.hedgebookpro.com/blog/calculating-fx-forward-points/ |accessdate=11 December 2019}}</ref>

A pip is sometimes confused with the smallest unit of change in a quote, i.e. the [[Finance:Tick size|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 {{gaps|100,000|units}} 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.<ref>{{cite book|last1 = Archer|first1 = Michael D.|last2 = Bickford|first2 = James L.|title = Getting Started in Currency Trading: Winning in Today's Hottest Marketplace|publisher = {{wipe|John Wiley & Sons}}|date = May 25, 2005|location = Hoboken, New Jersey|isbn = 978-0-471-71303-6|url-access = registration|url = https://archive.org/details/gettingstartedin0000arch}}</ref>

==Example==
If the currency pair of the [[Finance:Euro|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|650000}} and closes the position after the 10 pips' appreciation, the trader will receive {{USD|650500}} 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 [[Finance:Equity|equity]] for the transaction.
The Japanese Yen is an exception to this rule because of its worth against the US dollar being 0.01 <ref>{{cite web |url=https://www.referralforex.com/ |title=Home |website=referralforex.com |access-date=2017-11-17 |archive-date=2017-11-01 |archive-url=https://web.archive.org/web/20171101002856/https://www.referralforex.com/ |url-status=dead }}</ref>

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==
[[Finance:Electronic trading platform|Electronic trading platform]]s have brought greater price transparency and price competition to the foreign exchange markets.<ref>{{Cite web|url=http://www.forexbrokersreviews.com/trading-academy/pips-and-spreads/|title=Pips and Spreads Explained - Forex Trading Basics|website=www.forexbrokersreviews.com|language=en-GB|access-date=2017-04-04}}</ref> 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<ref>{{cite web |url=http://www.fenicsmd.com/products/rates/ |website=Fenics MD |accessdate=16 March 2020|title=Fenics MD » RATES }}</ref> for their forward contracts or non-deliverable forwards.
{| class="wikitable"
|-
! Currency !! Pip value
|-
| EURUSD || {{USD|0.0001|link=yes}}
|-
| GBPUSD || {{USD|0.0001|link=yes}}
|-
| USDJPY || {{JPY|0.01|link=yes}}
|-
| USDCAD || {{CAD|0.0001|link=yes}}
|-
| AUDUSD || {{USD|0.0001|link=yes}}
|-
| USDCHF || {{CHF|0.0001|link=yes}}
|-
| NZDUSD || {{USD|0.0001|link=yes}}
|-
|-
| USDSEK || {{SEK|0.0001|link=yes}}
|-
| USDNOK || {{NOK|0.0001|link=yes}}
|-
|-
|}

==See also==
* {{annotated link|Finance:Basis point}}
* {{annotated link|Pip (counting)}}

==References==
{{reflist}}

{{DEFAULTSORT:Percentage In poInt}}
[[Category:Foreign exchange market]]

{{Sourceattribution|Percentage in point}}