In trading terms, points, pips, and ticks highlight the changes in the financial market. Since even the slightest change can cause ripples of effect, points and ticks are assigned to denote them. A point stands for the smallest price change on the left side of the decimal point, and a tick denotes the same but on the right side of the decimal point. Pips are used in the forex trading market to denote the change in a currency pair. In short, this is the traders’ lingo. But, there is more to these words. Let’s dig deeper.
Defining the Terms
Futures point value
The futures point value represents the smallest price increment change on the decimal point’s left side during futures trading. For example, futures point value for S&P 500 E-Mini (ES) futures has a price change of one point when the price goes from 1350 to 1351.
Points are typically used in the futures trading market. When the smallest rise in the price occurs on the left side of the decimal point, it is referred to as a point. For example, if the S&P 500 E-Mini (ES) futures see a change in futures point value and jump from 1331.00 to 1332.00, we will say that there has been a price change by one point. The movement of a point has a dollar value attached to it. However, the exact value of a point varies by exchange. For example, with each point movement in crude oil on the Chicago Mercantile Exchange, the market sees a fall or rise of $1000.
Forex Point Value or Ticks
A tick represents a forex market’s smallest possible price movement to the right of the decimal. For example, a price change for EURUSD from 1.3040 to 1.3041 would mean one tick.
Points are the smallest price increment. These points are composed of ticks like minutes are made up of seconds. Traders talk about ticks when there is a movement in prices on the decimal’s right side in the futures contract. Tick is the smallest possible price variation that can be measured in the trade market. The value of ticks is not set in stone. Its size and value changes as per the futures contract. For example, the size of a tick in the S&P 500 E-Mini is 0.25, in crude oil, it is 0.01, and it is 0.10 in gold futures (GC).
The size of a tick determines the increment in a point. Take the case of the S&P 500 E-Mini. As one tick is worth 0.25, it will take four ticks to increase a point. Similarly, crude oil will see a rise in one point with the movement of 100 ticks, and GC will see a change when at least 10 ticks move.
As mentioned earlier, ticks are fractions of a point. For crude oil in CME, every tick value is $10 as each point is worth $1000, making the tick value exactly 1/100th of the point. You can visit the websites of various futures trade to know more about the values.
Forex pips meaning
A forex pip is the lowest price increase for a given pair. The pip value is a unit of measurement for currency movement in most currency pairs in the forex trade.
Pips: Pips are used in forex trading. They signify currency pair price movements. Pips move when the fourth decimal place of the price moves by one. For example, if your base currency EUR and the counter currency is USD, the currency pair will be EUR/USD. If this pair moves from 1.1506 to 1.1507, this is the movement of one pip.
A pip applies to all the currency pairs, except those with Japanese yen (JPY) as the base or the counter currency. In currency pairs with JPY, one pip movement occurs at the second decimal place instead of four in regular currency pairs. For example, in the EUR/JPY currency pair, one pip movement will occur if the pair moves from 109.26 to 109.25.
These days, brokers offer fractional pip pricing as well; that is, they will quote a fifth decimal place. For example, if the currency pair EUR/USD moves from 1.08085 to 1.08095, it is one pip movement, but if it moves from 1.08085 to 1.08095, it will be considered half a movement.
You can use covert ticks to pips. One pip is equivalent to 10 ticks. Depending on the currency pair, the pip value varies significantly. If USD is fixed as the counter currency, the pip value is fixed at $10 per $100,000 traded. If USD is the base currency or the trader is not using USD, the pip value or the forex point value will fluctuate.
Terms and their Markets
While points, ticks, and pips are all trading terms and have the same purpose, they have different particular markets to describe price movements. We use points and ticks in the futures market and pips in the forex market. The trading point meaning is very subjective. Stock traders liberally use them out of context as well. They usually use the term ‘points’ to describe the movement of dollars in stocks. The term ‘tick’ is used to define the movement in the tick charts. This is not even a monetary movement.
Thus, we can say that while these terms have set definitions, brokers and traders use them as they please, which can easily confuse a new person!