Pips, basis points, bps... We know, we hate jargon too. We've tried hard to remove all financial jargon from Hatch, but when we used percentages to explain our FX fees, it got a bit confusing.
What is a basis point (bps)?
A basis point is a measure used by the financial industry to explain the percentage change in things like share prices, interest rates and share indexes.
1 basis point = 0.01%
100 basis points = 1%
If the NZD rises 2 basis points and it started at 0.6777 it is now 0.6778 (0.6777 + (0.6777 * 0.02%)
What is a pip?
A pip is a very small measure of change between two currencies (e.g the NZD against the USD). It's traditionally the smallest amount an exchange rate can change.
1 pip = 0.0001
If the NZD rises from 0.6777 to 0.6779 USD, it's said to have risen 2 pips (0.6777 + 0.0002).
Yep, pretty similar. But big differences in outcomes for our customers.
Hatch charges 50bps on the rate. So if the base exchange rate (Interbank rate): 1 NZD = 0.67 USD our rate would be: 1 NZD = 0.6666 USD (0.67 - (0.67 * 0.005).
Using this rate, if you were to move $10,000 NZD through Hatch you would receive $6,666 USD.
If you were charged 50pips on the base exchange rate (Interbank rate) of 1 NZD = 0.67 USD the final rate would be: 1 NZD = 0.665 USD (0.67 - 0.005).
Using this rate, if you were to move $10,000 NZD through Hatch you would receive $6,650 USD.
By calculating our FX fee in 50 bps on the rate rather than 50 pips, we provide our customers a better rate on their deposits.
Still got questions? Let us know.