What is a basis point in forex?
A basis point in forex refers to a unit of measurement used to describe changes in interest rates or exchange rates. It is equal to 1/100th of a percentage point, or 0.01%. For example, if the interest rate increases by 25 basis points, it means it has risen by 0.25%.
In forex trading, basis points are used to indicate small fluctuations in currency exchange rates. Traders and investors closely monitor basis points as they can have significant impacts on the profitability of their trades.
Example of basis points in forex
In forex trading, basis points (bps) are commonly used to measure the percentage change in exchange rates or interest rates. One basis point is equal to 0.01% or 0.0001 in decimal form.
For example, if a currency pair’s exchange rate increases from 1.3000 to 1.3100, it has moved 100 basis points. Similarly, if an interest rate changes from 2.50% to 2.55%, it has increased by 5 basis points. Basis points help traders and investors to quantify and compare small changes in financial markets accurately.