This is going to be a short lesson. We will be covering these 3 terms:

1. Pip
2. Point
3. Tick
4. Cent

A SECRET!

Here is a secret…

They are all the same!

The powers that be… the institutions and hedge funds… want to make it difficult but whether you call it a tick, pip, cent, or point, you are talking about the same thing.

Here are a few definitions I just pulled from the web…

A tick is the minimum upward or downward movement in the price of a security. The term “tick” also refers to the change in the price of a security from trade to trade. Since 2001, with the advent of decimalization, the minimum tick size for stocks trading above $1 is 1 cent.

A pip is the smallest price move that a given exchange rate makes based on market convention. Since most major currency pairs are priced to four decimal places, the smallest change is that of the last decimal point; for most pairs, this is the equivalent of 1/100 of 1%, or one basis point.

4th Decimal or 2nd Decimal for Forex

So in essence, for forex, everything at the 4th decimal point is a pip, except of the JPY pairs and then everything at the 2nd decimal is a pip…

EURUSD 1.3014 (4 is the pip)
USDJPY 120.56 (6 is the pip)

For Stocks

In stocks and futures, just think of it in cents, ticks, points…

AAPL 95.89 (9 is the tick, point, cent)

GDX 29.08 (8 is the tick, point, cent)

For Futures

/YM or YM*1 or however your broker quotes it 17,924 (4 is the tick, point, cent)

Got it? Good. All traders are concerned about is how far price moves and these movements are quoted in pips, ticks, cents, and ticks. There 4 are pretty much interchangeable so if someone tells me that so and so forex pair moved 47 ticks, then I know he means 47 pips.

Let’s Drive it Home!

So to make it easy, let’s look at the following chart. Ask your self, ” How many PIPS of movement occurred in the following visual?

If price moved from 1.42010 to 1.42050, How many pips did it move?
a. 1 pip
b. 2 pips
c. 3 pips
d. 4 pips
e. 5 pips
Here is how you can know.

Step 1. Get rid of that 5th decimal point. it’s not needed. The 5th decimal is a fraction of a pips so just ignore it. If we ignore the 5th decimal, then 1.42010 becomes 1.4201.

Step 2. Subtract the low price from the high price… 1.4205 minus 1.4201. This equals 0.0004 or 4 pips.

Now Try This One

If you got 235 pips, you are correct!