Pips, points and ticks

What it is

A pip is the standard unit for forex prices: the fourth decimal place for most pairs (0.0001 on EURUSD), or the second for yen pairs (0.01 on USDJPY). Many brokers show a fifth decimal, a 'pipette', which is a tenth of a pip.

Futures move in ticks, the smallest price step a contract allows. On the Nasdaq contracts a tick is 0.25 index points: worth $5 on NQ and $0.50 on the micro MNQ, so a full point is $20 and $2. On the S&P contracts a tick is also 0.25: $12.50 on ES and $1.25 on MES. Indices and gold are usually quoted in points.

How to spot it

• Check the contract or symbol specification for the tick size and tick value; they differ between instruments and brokers.
• Gold (XAUUSD) moves in dollars and cents; what one 'point' means depends on the broker.

How to use it

• Measure stops and targets in pips, points or ticks, then turn them into money using the value per lot or contract.
• Use that money figure to size the position (see Position sizing).

Common mistakes

• Mixing up pips and pipettes, which makes stops ten times too small or large.
• Assuming a 'point' means the same thing on every instrument.

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