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Wednesday, October 30, 2013

Points, Ticks, and Pips



Definition:
Points, ticks, and pips, are all ways of describing an amount of price change. The term that is used depends upon the market being discussed, and sometimes on the amount of price change in question.

Definitions

The definitions of points, ticks, and pips are as follows:
  • Points - A point is the largest of the three terms, and is the smallest possible price change on the left side of the decimal point. For example, the ES futures market might experience a price change from 1314.00 to 1315.00, which would be a price change of 1 point.
  • Ticks - 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. For example, the ES might experience a price change from 1314.00 to 1314.25, which would be a price change of 1 tick.
  • Pips - A pip is the same as a tick (the smallest possible price change for the market in question), but is specifically used for the Forex markets. For example, the EURUSD (EUR to USD currency market) might experience a price change from 1.2500 to 1.2501, which would be a price change of 1 pip.

Which Markets Use Which Term?

Points are used for markets that trade in whole points (i.e. 1 point is the smallest price change that the market can experience), such as the YM futures market in the US, and the SMI futures market in Europe.
Ticks are used for markets that trade in any amount less than 1 point (tenths (0.1), hundredths (0.01), etc.). Examles of popular day trading markets that trade in ticks would be the NQ futures market, which trades in ticks of 0.25 points, and the DAX futures market, which trades in ticks of 0.5 points.
Pips are used specifically for the Forex markets, such as the EURUSD currency market, which trades in ticks of 0.0001 points, and the USDJPY currency market, which trades in pips of 0.000001 points.

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