The Definition of a Stock Exchange Point
Since investors buy, sell and trade different types of securities on the stock exchanges, the definition of a stock exchange point varies depending on the type of security. For example, a point for fixed-income securities is not the same as a point for equity securities. Some stock points represent price changes in dollars and cents, while others are a measure of percentages.
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Stock Points
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For stocks, one point equals one dollar. If a stock closed 20 points higher for the day, it means the stock's price has increased by $20 from its opening price. The opening price for is the price of a stock when the markets open in the morning, and closing price is the price of a stock when the markets close for the evening. Unlike other types of stock exchange points, stock points are not a measure of percentage, but a measure of dollars only.
Bond Points
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Bond points are measurements of dollars, but investors often describe bond price movements in percentages. One bond point is equivalent to $10 U.S. dollars. Financial markets split bond quote prices into fractions of eight. Each eighth of a bond point is equal to $1.25. Investors use these numbers to calculate a bond's price by first multiplying the bond point quote by 10, then changing the fraction into its corresponding dollar value. For example, if a bond point quote is 100 3/8, then the bond price is $1003.75. The calculation works out like this: 100 x 10 = $1000; 1/8 = $1.25, so the calculation for 3/8 is 3 x $1.25 = $3.75.
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Bond Yield Points
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The yield on a bond is the interest payments bondholders should expect to receive if they hold the bond until its maturity date. Bond yield points in the stock exchange are percentages of change using a basis point. One basis point is 1/100 of 1 percent or .01 percent. If the yield on a bond changes from 10 percent to 10.5 percent, the .5 percent increase translates into 50 basis points (.5/.01 = 50).
Futures and Options
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Futures contracts are contracts by which the issuer promises to deliver a security instrument to the seller, and the seller promises to purchase that security at a future date for a specific price. Options give the investor the option to buy or sell the contract at a preset price at any time up until the expiration date on the contract. Points on futures and options are equal to one-hundredth of a penny.
Pips and Ticks
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A pip is the smallest movement of price in the foreign exchange market or FOREX. Markets measure pips by one one-hundredth of one percent or one basis point, carried out to the fourth decimal place. For example if a currency value changes from 20.1250 to 20.1251, it has increased in value by the number in the last decimal place, in this case 1 pip. Ticks are the smallest price movement on any stock exchange and represent the numbers on the left of the decimal place. Investors use ticks to measure the stocks price from trade to trade. If a stocks price is increasing between trades, it is on an up tick. If a stock's price is decreasing between trades, it is on a down tick.
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