Pips and Points – What’s the Difference?

These terms are frequently used in the financial world and specifically in trading; they describe price changes in the financial markets. While most traders utilize both when executing their strategies, each one differs in what it signifies and how it functions within the market.

Points

A Point refers to the smallest possible price change but specifically to the left of the decimal point. Between Pips and Points, a Point is the largest change in price and as mentioned, only makes reference to the left side of the decimal point.

For example: An investor trades shares of Apple. The trade opens at $100.00 and closes at $105.00. This is described as a five-point movement and not as a $5 increase. Thus, the highlighted figure is the Point in this example:

• $100.00
• $105.00

Pips

A Pip stands for ‘Percentage in point’ and refers to the smallest price movement possible in an exchange rate, based on market convention. The majority of forex currency pairs will be presented as four decimal points. The smallest change here would be the last of these four decimals or the fourth figure to the right of the decimal point.

A Pip equals 1% or 1/100th and is referred to as one basis point.

For example: An investor trades on USDZAR. The trade opens at $100.0001 and closes at $100.0006. This is described as a five basis points and not as $0.0005 increase. Thus, the highlighted figure is the Pip in this example:

• $100.0001
• $100.0006

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