## WHAT is 'Nickel'

Nickel is a slang term meaning 5 basis points or pips. That is 5 one hundredths of a percentage point, or 0.05%.

In financial markets, traders use slang terms like nickel to refer to minute changes in interest rates, particularly in markets like forex or government debt where such small changes are common.

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## BREAKING DOWN 'Nickel'

Nickel as a term for 5 basis points is typically used by forex traders to denote interest rate changes that a central bank makes, as well as changes in the value of a given currency over the course of a trading session. Forex rates are usually expressed in whole number format, and use four decimal points instead of fractions for remainders. For example, the USD/EUR currency pair is quoted at 1.2512. A nickel adjustment upward would increase the quote by 0.0005, since each basis point is worth 0.0001. The new rate would be 1.2517.

## How a Nickel Affects Gains and Losses

Basis points and pips help investors calculate gains and losses throughout a trading session. Currency prices are listed in pairs detailing the price of one currency to another. For example, a foreign exchange trader believes the value of the euro might rise against the dollar in daytime trading. The relationship between the EUR/USD stands at 1.2100, or 1.21 euros per \$1. The trader buys 100,000 euros at a price of \$121,000.

A few hours later, the value of the euro against the dollar rises to 1.2105, adding a nickel, or 5 pips, to the value. The trader who just bought 100,000 euros just made a profit of 0.05%, or approximately \$60. The trader, at this point, converts the euros back to dollars. If the euro falls against the dollar, the person could still make a profit by keeping the currency in euros instead of converting them back to dollars, and then trading them back at a later time.

## How to Determine the Value of a Nickel

Traders can calculate the value of 1 pip by dividing 1 pip, or 0.0001, by the exchange rate and then multiplying that number by the amount of money the trader wants to invest. If the exchange rate of USD/EUR is \$1.30 for 1 euro, and an investor wants to spend \$100,000, 1 pip is worth 0.0001, divided by 1.30, and then multiplied by \$100,000. The value of one pip on this trade is approximately \$7.69.

After the trade completes, investors can easily determine the profit or loss made by multiplying the pips by \$7.69. If the exchange rate rises 100 pips, the person makes \$769 on the trade. Pips always change value based on the currencies exchanged and the amount of money invested in the trade.

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