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Q&A: What is a "point" in currency trading?

Question

What is a "point"?

In one of your recent posts on the Euro you write "...but shorter-term traders should be aware that the Euro has dropped about a point (which is fairly large for currency moves since I originally placed the additional trades)." and I am wondering what a "point" is in this context?

Answer

A point refers to one percent (1%), or in some cases, it can mean one-hundredth of a currency's dollar (in the case of the US Dollar, a penny).

In the case of the Euro and the US Dollar, both currencies trade as a pair denominated in Euros. So, if the US Dollar appreciates against the Euro, the EUR/USD pair trades lower, reflecting the fact that one Euro now buys less in US Dollars. If the EUR/USD pair trades from $1.31 down to $1.30, that could be referred to as a one-point move down, referring to the fact that the Euro now buys one penny fewer of the US Dollar. In this case the point refers to the penny.

It is most common, however, for one point to refer to one percent (1%). So a move of this magnitude using the same currency pair EUR/USD as an example would be approximately 1.3 pennies lower or higher.


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currency trading, EUR/USD, Euro, Forex, penny, Point, US Dollar

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