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Common questions among new traders are “What is the difference between a point a pip and a tick?” or “What is the difference between a point and a tick?” and so on. I will outline here what the differences are between all three, so you can get up to speed with understanding this often confusing element of trading the markets.
A Point
A point is really the most generic term which people will use to describe their wins and losses, often a point is used to describe trading in a spread betting account like IG index or Gekko Global Markets. A point is the smallest decimal change on the left side of the decimal place.
For instance if Apple (AAPL) traded from $700.00 to $705.00 we would say apple moved 5 points.
If we were trading the FTSE 100 and the price changed from 6,330.00 to 6,337.00 we would say that the FTSE has moved 7 points.
But if a trader is using a spread betting account, a point is often referred to as the amount the spread betting company is paying on what they call 1 point. For instance if you trade EURUSD on IG Index the value they call 1 point is paid on the 4th decimal. So at the time of writing the Euro against the Dollar (EURUSD) is trading at 1.32337. IG Index quote the price as 13233.7, you can see they have moved the decimal point so in their platform a point is still the smallest number on the left side of the decimal.
So remember a point is the smallest move possible on the left side of the decimal.
A Tick
A tick is the smallest move possible in any market but usually refers to the futures market. Traders usually use the term ticks when they are trading in markets that trade in amounts less than 1 point. An example would be the e-mini (ES), the e-mini trades in values of 0.25 so the e-mini trades at 4 ticks per point.
If a trader said “I made 56 ticks on the e-mini this morning”, that would mean that he made 14 points. As an example if the e-mini was trading at 1505.00 and it moved to 1505.25 that would be 1 single tick.
A Pip
Pips are the same as ticks except they are used to describe the minimum price change in the Forex market. The currency markets often trade in multiple decimals for example the EURUSD trades with 5 decimals as a single pip/tick (0.00001).
A point on the Forex market is often hundreds or thousands of pips.
So to clarify points are used to describe the smallest price change on the left side of the decimal and ticks/pips are used to describe the smallest possible change amount in a market. The stock market usually trades in points where traders don’t usually use the term pips or ticks to describe the action they use a dollar amount.
I hope that helps clear up your questions.
Remember our swing trading software knows what a point, a pip and a tick are and work out entries and exits for you.[/vc_column_text][/vc_column][/vc_row]
