In futures trading, "pips," "points," and "ticks" are often used to describe price movements, but they have distinct meanings, especially depending on the asset class.
Points: A point represents a one-unit movement in the underlying asset's price, and it’s typically the most significant increment. For example, if an index future moves from 3,000 to 3,001, that's a movement of one point. Points represent larger value shifts and are generally used as a broader measure.
Ticks: A tick is the smallest possible price movement of a futures contract. The value of a tick varies by asset and contract. For instance, in the E-mini S&P 500 futures, a tick is 0.25 points, while in crude oil futures, a tick is 0.01 points. Each tick has a monetary value associated with it, based on the contract specifications.
Pips: Pip stands for "percentage in point" and is primarily used in Forex trading to represent the smallest price move in currency pairs. In Forex, one pip is typically 0.0001 for most currency pairs (like EUR/USD), though in Japanese yen pairs (e.g., USD/JPY), a pip is 0.01. In futures, however, the term "pip" is rarely used since ticks are the standard term for the smallest price movement.
In Summary:
- Points are broad price changes (e.g., 1,000 to 1,001).
- Ticks are the smallest price changes, defined per contract.
- Pips are mainly used in Forex, equivalent to 1/100th of 1% for most pairs.
