# Comparison of pips, points and ticks

By Mark Holland / a few months ago ## Pips vs. Points vs. Ticks: What is the difference?

Point, tick and pip are terms that traders use to describe price changes in financial markets. While all three terms are used similarly by traders and analysts, each is unique in the degree of change it means and how it is used in the markets.

One point represents the smallest possible price change in the left side of a decimal point, while a mark represents the smallest possible price change in the right side of a decimal point.

A pip, short for “percentage point,” is similar to a tick in that it also represents the smallest change to the right of the decimal, but it is a crucial measurement tool in the forex market.

### Key takeaways

• Point, tick, and pip are terms used to describe price changes in financial markets.
• While all three terms are used similarly by traders and analysts, each is unique in the degree of change it means and how it is used in the markets.
• Some indices readjust prices in a way that allows investors to track price changes in points.

## Understanding Pips vs. Points vs. Ticks

### Point

One point is the largest price change of the three measures and only refers to changes to the left side of the decimal, while the other two include fractional changes to the right.

An investor with shares of ABC Company might describe a price increase from \$ 125 to \$ 130 as a five-point move rather than a \$ 5 move.

### The point is the term most used among traders to describe price changes in the markets they choose.

Some indices readjust prices in a way that allows investors to track price changes in points. For example, the investment grade index, or IG index, tracks price movements down to the fourth decimal place. However, when quoting prices, move the decimal four places to the left so that movements can be expressed in points. Therefore, the price of 1.23456 is set as 12.345.6.

### Tick

A tick denotes the smallest possible price movement of a market to the right of the decimal. Going back to the IG index example, if this index chose not to change the decimal place to use points, its price movements would be tracked in increments of 0.0001.

A price change, then, from 1.2345 to 1.2346 would represent a tick. Ticks do not have to be measured in factors of 10. For example, a market could measure price movements in minimum increments of 0.25. For that market, a price change from 450.00 to 451.00 is four ticks or one point.

Before April 2001, the smallest tick size was 1/16 of a dollar, which meant that a stock could only move in increments of \$ 0.0625. While the introduction of decimalization has benefited investors through much tighter bid / ask price spreads and better price discovery, it has also made market making a less profitable (and riskier) activity. .

### Nugget

A pip is actually an acronym for “percent o’clock.” A pip is the smallest price movement that an exchange rate can make according to market convention. Most currency pairs are priced to four decimal places and the smallest change is the last (fourth) decimal point.

One pip is the equivalent of 1/100 of 1% or one basis point. For example, the smallest move the USD / CAD currency pair can make is \$ 0.0001 or one basis point.

www.investopedia.com

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