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.

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.

RELATED TERMS
  1. Electronic Currency Trading

    Electronic currency trading is a method of trading currencies ...
  2. Chasing Nickels Around Dollar Bills

    Chasing nickels around dollar bills refers to when a company's ...
  3. Currency Pairs

    Currency pairs are two currencies with exchange rates coupled ...
  4. Currency Pair: EUR/USD (Euro/U.S. ...

    The Currency Pair EUR/USD is the abbreviation for the euro and ...
  5. Forex Trading Strategy

    A forex trading strategy is a set of analyses that a forex day ...
  6. Basis Point (BPS)

    Basis point (BPS) refers to a common unit of measure for interest ...
Related Articles
  1. Financial Advisor

    What Is A Pip?

    Learn how this measure of change is used in trading currencies on the forex market.
  2. Tech

    The Basics Of Currency Trading

    Trading in the currency market isn't easy. We tell you what you need to know before starting.
  3. Trading

    The Evolution Of A Retail Trader

    How do you evolve as a trader? If you are new to forex trading, do yourself a favor and find an education that fits your personality.
  4. Trading

    How To Use A European Open Forex Strategy

    Forex traders need to be aware of both price movements and the time of day. Learn FX strategies that incorporate these factors to maximize profits.
  5. Trading

    Spread-to-Pip Potential: Which Pairs Are Worth Day Trading?

    Learn how spreads play a significant factor in profitable forex trading. Find out when it's worth trading and when it isn't.
  6. Trading

    The Seven-Day Extension Fade

    It's possible to pick a top or bottom with no indicator support. We'll show you how this strategy works.
  7. Trading

    Forex: Should You Be Trading Trend Or Range?

    In FX, it's not the price environment that decides this for you. Learn the differences to see which you prefer.
  8. Trading

    The top 8 most tradable currencies

    Currencies can provide diversification for a portfolio that's in a rut. Find out which ones you need to know.
  9. Trading

    Forex Trading The U.S. Trade Balance Figures

    Those that are able to capitalize on this rather obscure report will benefit immensely from it.
  10. Trading

    How to pay your forex broker

    Three types of commissions are used in this market. Learn how to get the best deal.
RELATED FAQS
  1. What is the value of one pip, and why are pips different between currency pairs?

    Pips relate to the smallest price moves of foreign exchange rates. This differs from currency pairs such as EUR/USD, which ... Read Answer >>
  2. How Does Leverage Affect Pip Value?

    Small changes in pip value will result in larger fluctuations in account value. Read Answer >>
  3. What is a pip and what does it represent?

    A pip is a very small measure of change in a currency pair in the forex market and can be measured in terms of the quote ... Read Answer >>
  4. How do you make money trading money?

    Trading money, particularly in the forex market, is a speculative risk, as you are betting that the value of a currency will ... Read Answer >>
  5. What is hedging as it relates to forex trading?

    A currency trader enters a forex hedge to protect an existing or anticipated position from an unwanted move in the foreign ... Read Answer >>
  6. Is there a buy-and-hold strategy in forex, or is the only way to make money by trading?

    Typically there are different ways to trade in most markets. Traders have been classified into three groups, primarily based ... Read Answer >>
Hot Definitions
  1. Business Cycle

    The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles ...
  2. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  3. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  4. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  5. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  6. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
Trading Center