Points, Ticks, and Pips Trading
Understanding These Financial Units of Measurement
Points, ticks, and pips are ways of describing a change in asset prices. Which term is used depends upon the market being discussed, and the amount of the price change in question. First, let's look at what these individual terms mean, then we will look at which to term to use, and when.
Points typically refer to futures trading. A point is the smallest price increment change that can occur on the left side of the decimal point. For example, S&P 500 E-Mini (ES) futures might experience a price change from 1314.00 to 1315.00, which is a price change of one point. If Crude Oil (CL) moves from 68.00 to 69.00, that is one point. Each point of movement has a dollar value attached to it, set by the exchange. For example, each point of movement in crude oil on the Chicago Mercantile Exchange (CME) is $1,000.
A point is composed of ticks, which are the price movements that occur on the right side of the decimal when looking at the price of a futures contract.
A tick is the smallest possible price change for the market in question and may be anywhere on the right side of the decimal point. Markets have different tick sizes, and how much each tick is worth varies by the futures contract. 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 (GC) have a tick size of 0.10.
Points are composed of ticks. How many ticks are in a point is determined by how many ticks it takes to increase the price on the left side of the decimal by one. In the S&P 500 E-mini, there are four ticks to a point, in gold futures, there are 10 ticks to a point. This is because the S&P 500 E-Mini has a tick size of 0.25. As the price moves up incrementally it may go from 1300 to 1300.25, then, 1300.50, then 1300.75. When the price rises four ticks, the price on the left of the decimal increases to 1301.00.
How much money a tick of movement is worth, called tick value, depends on the futures contract being traded. For the S&P 500 E-mini, the tick value is $12.50. For crude oil, the tick value is $10. To find the tick value for other futures, find the contract on the CME Group website, click on the appropriate contract, and then click on the Contract Specs tab.
A pip refers to currency pair price movements. A pip of movement occurs each time the fourth decimal place of the price moves by one. It applies all currency pairs, except those, contains the Japanese yen (JPY).
For example, if the EUR/USD forex pair moves from 1.1608 to 1.1609, that is one pip of movement.
For forex pairs that contain the JPY, one pip of movement occurs at the second decimal place. If the USD/JPY moves from 109.16 to 109.15, that is one pip of movement.
Forex brokers now offer fractional pip pricing. It means a fifth decimal place is often quoted. If the price of the EUR/USD moves from 1.08085 to 1.08095, that is one pip of movement. If the price moves from 1.08085 to 1.08090, then it only moved half a pip. There are 10 fractional pips to a whole pip.
How much money a pip of movement is worth, called pip value, depends on the forex pair being traded. For pairs where the USD is listed second, like the GBP/USD, the value of each pip is fixed at $10 per $100,000 traded. For pairs where the USD is not listed second, or if the trader is not using a USD account, the pip value fluctuates.
Which Markets Use Which Term?
Points and ticks are used in the futures market when discussing price movements. 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. If they bought at $5, and the stock is now at $8, they may say they are "Up three points."
The term "tick" is also used in reference to tick charts. A tick chart tracks transactions, so in this sense, a tick represents a transaction. When someone refers to a tick chart, they are talking about a chart type that logs each transaction and plots it on a price and time graph.
Updated by Cory Mitchell, CMT.