Per the title, does 1 PIP equal 1 basis point?
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The short answer is usually yes a PIP is equal to a basis point, but there is a longer answer, and not always.
The term PIP is usually used by f/x traders, and 1 PIP refers to the minimum unit that a currency pair can trade against each other. Most currencies (eg EUR/USD) trade out to 4 decimal points, eg EUR/USD=1.0997, and the ‘7’ is referred to as a PIP. eg, a movement from 1.0997 to 1.0998 is an upward movement of 1 PIP.
Some currencies trade out 5 decimal points, eg if EUR/USD=1.09974, then the ‘7’ is still a PIP, but the ‘4’ is known as a Pipette.
However, for currencies that have more units per USD, like the Japanese yen, where USD/JPY = 134.53, the ‘3’ in this example is known as a PIP. Vietnam Dong, Indonesian Rupiah, etc., all typically trade out to .00, and that 2nd unit is known as a PIP. (eg, if USD/JPY moves from 134.53 to 134.52, that’s a one pip downward movement)
So in this latter case, a PIP does not equal a basis point.
Basically, PIP is a term that’s specific to currency traders and it’s almost never used in other contexts in the world of finance. Basis Point is the more common term used outside of the F/X world.
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I’ve also heard it called a decipip.
(To me, a pipette (long i) is a thin tube used by chemists for transferring liquids.)
I had wondered if this were true. The curriculum doesn’t mention it, and as I don’t trade currencies I didn’t know. Thanks for clearing it up.
Another question on FX that you might be able to answer: we know that some pairs are quoted to four decimal places, and some to two decimal places. Are there any pairs that are quoted to three decimal places?
Yes, some dealers quote to 3 decimals for USD/JPY, and quote to 5 decimals for EUR/USD. Both the 3rd and 5th decimal units respectively in these examples are colloquially known as a pipette. Hope that helps.
So . . . no quotes for which the third decimal is a pip?
Not that I’m aware of, but if you can find one, then I will be Pipped. 