Point in trading: meaning, pip vs point explained

By Ken Chigbo, Founder, KenMacro. Published 2026-05-13.

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What is point?

A point is the smallest or a standard unit of price change on a traded instrument, and its definition shifts with the asset class. On a five-decimal FX quote, a point usually refers to the fifth decimal place, which sits one order of magnitude below a pip. On index CFDs such as the S&P 500 or DAX, a point typically means one full index unit. On equities and equity CFDs, a point generally means one unit of the listed currency. Because the term is convention-dependent, the desk treats it as a relative measure rather than a fixed value, and always cross-checks the contract specification.

How traders use point

Retail traders use points to size positions, set stops and measure performance in a way that is comparable across instruments. On an index CFD platform, a stop placed twenty points below entry corresponds to twenty full index units, and the cash value of each point is given by the contract size. On FX, where one pip equals ten points on a five-decimal quote, traders often track slippage and spread in points because it offers finer resolution than pips. Institutional desks use point-based notation in execution reports, where transaction cost analysis is measured in points relative to mid. The desk recommends checking each instrument’s specification sheet for point value, contract size and minimum tick before sizing risk, since a single label can mean different things on different venues.

Common misconceptions about points

The most frequent confusion is treating a point and a pip as identical in forex. On modern five-decimal quotes, a pip is the fourth decimal and a point is the fifth, so ten points equal one pip. Another error is assuming a point has a fixed cash value across instruments. One point on a DAX CFD is worth a very different amount than one point on a GBP/USD trade. Traders also conflate points with ticks, but a tick is the minimum price increment a venue allows, which may equal one point or several points depending on the instrument’s tick size.

Frequently asked

What is the difference between a pip and a point?

On a four-decimal FX quote, a pip and a point are often used interchangeably. On a five-decimal quote, which most retail brokers now offer, the pip remains the fourth decimal and the point becomes the fifth decimal. That makes one pip equal to ten points. The point therefore offers finer resolution for measuring spreads, slippage and execution quality, while the pip remains the standard unit for sizing and discussing trades.

How much is one point worth on an index CFD?

On an index CFD, one point usually means one full unit of the underlying index, and its cash value depends on the contract size set by the broker. For example, if the contract specification states one currency unit per point, then a fifty point move equals fifty units of profit or loss per contract. The desk recommends opening the instrument’s contract details before trading, since point values vary between brokers and between standard and mini contracts.

Is a point the same as a tick?

Not necessarily. A point is a unit of price measurement, while a tick is the minimum price increment that a venue or platform allows for a given instrument. On some products the tick size equals one point, but on others the minimum tick may be a fraction of a point or multiple points. Futures markets in particular often have tick sizes that do not align cleanly with a one point definition, so traders should check the exchange specification.

Why do brokers quote prices to five decimals instead of four?

Five-decimal pricing, sometimes called fractional pip pricing, gives traders tighter spreads and more precise execution. By quoting to the fifth decimal, a broker can show a spread of, for instance, eight points rather than rounding to one pip. This is particularly useful on raw-spread accounts where competition compresses spreads below one pip during liquid sessions. It also gives the desk a clearer view of transaction costs when comparing venues.

Educational analysis only. Past performance does not guarantee future results. Manage risk against your own portfolio.