Points, ticks and pips are basically ways of describing an amount of change in the price of an asset or instrument in the market. The term used depends on the market we are trading in and sometimes on the amount of price change in question.
Below we will see when each term is used and how it works.
A tick is the smallest possible price change for the market in question, and can be anywhere on the right side of the decimal point. The markets have different tick sizes. The shares have a tick size of $0.01, as they move in $0.01 increments.
Futures markets also move in ticksand the amount of the tick (also called “Tick Size” or tick size) varies depending on the futures contract.
For example, the S&P 500 E-Mini has a tick size of 0.25, crude oil has a tick size of 0.01, and gold futures has a tick size of 0.10.
Points are made up of ticks. A point is worth one, or an increment on the left side of the decimal point. So how many ticks are there in a point?
The answer to this question is the number of ticks that, when added together, give a point. For example, in the S&P 500 E-mini we have 4 ticks per point while in gold futures we have 10 ticks per point.
The amount of money a 1-tick movement is worth (also known as “Tick Value”) depends on the futures contract that is being traded.
A pip is the smallest movement in price which occurs to the fourth decimal place in (most) currency pairs.
For example, if the EUR/USD currency pair moves from 1.1800 to 1.1801, this is one pip of movement. For currency pairs containing the Japanese Yen (JPY), a pip movement occurs to the second decimal place. For example, if the USD/JPY goes from 111.00 to 111.01, this is a pip move.
Forex brokers now offer fractional pip pricing. This means that the quotes offered by these companies often have a fifth decimal place. For example, if the price of EUR/USD moves from 1.18005 to 1.18015, this is equal to a 1 pip move. If the price moves from 1.18005 to 1.18010, then the price only moved half a pip. Therefore, there are 10 fractional pips in a whole pip.
The amount of money a 1 pip move (known as the Pip Value) is worth depends on the currency pair we are trading.
When we speak of points, we refer to the largest of the three termsand is the smallest possible price change on the left side of a quote’s decimal point.
For example, the S&P 500 E-Mini futures market may experience a price change from 2550.00 to 2551.00, which would be a one point price change.
If crude oil moves from 50.00 to 51.00, it would have a one point move. A point is made up of ticks, which are price movements that occur to the right of a quote’s decimal point.
Which markets use each term?
Points and ticks are used in the futures market when analyzing how much a price can or has moved. Pips are used in the forex market for the same purpose. Stock traders may also use the term “points” when talking about how many dollars a stock has moved. For example, if they bought a stock at $5, and the price of the stock is now at $8, then they could say that the stock is now up by 3 points.
Sounds interesting to you, right? Keep learning with DTP with upcoming articles on our Blog.