In financial trading, the terms "Point," "Pip," and "Tick" are key concepts. Although these terms might seem simple, their definitions and applications can vary across different markets. Understanding these concepts is crucial for effective market analysis and strategy development. Below is a detailed explanation of these terms and their applications in various markets.

Points in the Forex Market

In the Forex market, a "point" refers to the last decimal place in the price of a currency pair. For instance, if the EUR/USD price is 1.23456 and it moves to 1.23457, we say the price has moved by one "point."

It's important to note that different Forex brokers may use different decimal places. Most brokers quote JPY pairs with 3 decimal places, while other currency pairs are quoted with 5 decimal places.

For example, the EUR/USD price might be displayed as 1.23456, whereas the USD/JPY price might be 110.123. Some brokers might use fewer decimal places, affecting how points are calculated and the precision of the price.

Points in Stocks, Indices, and Commodity Futures

Unlike the foreign exchange market, "pips" in stocks, indices and commodity futures do not involve fractional digits, but instead refer to whole-number price movements. For example, if the price of a stock rises from $20.00 to $21.00, we say that the stock has risen by one "point".

Similarly, when the Nasdaq index rises from 12,000.00 to 12,005.00, we say that the index has risen by five "points".

In these markets, "pips" usually reflect the actual monetary value of the price movement, such as the change in dollars, euros or other currencies represented by each pip, making "pips" a visual indicator of price volatility and an assessment of trading returns.

Pips in the Forex Market

"Pip" stands for "Percentage in Point" and is used to measure the price movement of a Forex currency pair. One "pip" is typically equivalent to 10 Forex "points."

For example, if a trader aims to achieve a gain of 300 "points," it means they are targeting a profit of 30 "pips."

Ticks in the Forex Market

"Tick" refers to the smallest unit of price movement an asset can make. While most markets have price precision to the last decimal place, this may not always be the case, depending on the broker's pricing rules.

For example, if trading the DAX index with a tick size of €0.50, the price might only be quoted as 13000.00, 13000.50, 13001.00, and so on. This means that despite the high precision of price changes, actual price updates adhere to the tick size.

In the Forex market, even if a currency pair is quoted with 5 decimal places (e.g., EUR/USD at 1.23456), price movements might still be in increments of 1 pip, which is equivalent to 0.00010. This reflects that the smallest unit of price movement is 1 pip, or 0.00010, indicating the actual step size in price changes.

Summary

• In Forex: A "point" refers to the last decimal place of the price, used to measure small price changes. Different brokers may use different decimal places.
• In Stocks, Indices, and Commodity Futures: A "point" refers to whole number changes, reflecting the monetary value of price changes.
• In Forex: A "pip" measures price movement and is equivalent to 10 Forex "points."
• A "Tick": Refers to the smallest unit of price movement, which might be larger than the precision of the price depending on the broker's rules.