What Are Pips, Ticks, Bips in Trading & How Do They Work?

In the investment universe, a "tick" refers to the minimum price movement of a financial instrument or asset. The size of a tick varies depending on the asset/market being traded, but it typically represents the smallest incremental change in price that can occur in a given market. For stocks, a tick is often the smallest price change for a stock. In the U.S. stock market, for example, a tick usually represents one cent ($0.01). If a stock moves from $50.00 to $50.01, that is considered a one-tick move. Equities and exchange-traded-funds (ETFs) are easy to understand, as they typically have a universal tick size of $0.01 and a full point equates to $1.

However, tick sizes can differ depending on the security or product being traded. In the futures market, the tick size can vary based on the specific contract. For example, in the S&P 500 E-mini futures (ES), a tick size is 0.25 points, meaning each price movement of 0.25 points is a tick. In the crude oil futures (CL), a tick size is 0.01, meaning each price movement of 0.01 represents a tick. These ticks can also result in different monetary changes in the contract. One tick in the E-mini S&P 500 futures (ES) contract of 0.25 actually equates to $12.50. As one full-point move in /ES equates to $50. In crude oil futures (/CL), one full point equates to $1,000. Therefore, one tick in /CL is actually a $10 move. It’s important to fully understand the product you’re trading for this reason.

In the forex market, "ticks" are often used interchangeably with "pips" to refer to small price changes, but they represent the smallest unit of price movement. While "pips" are commonly used in currency trading, "ticks" are also used in futures and options markets, often functioning similarly. For example, in the EUR/USD futures contract, a tick size could be 0.0001, which mirrors the pip value in currency pairs. However, in other markets, a tick may represent a larger or smaller price movement depending on the asset being traded. Thus, while the concept is similar across asset classes, the actual value of a tick or pip can vary depending on the specific market and the underlying instrument.

Ticks are the smallest possible price movement in a given market, and they function as a fundamental unit of measurement for price changes. The exact value of a tick is determined by the market or product being traded. In essence, a tick is a discrete increment by which an asset’s price can change. For example, in the U.S. stock markets, a tick often represents a one-cent price movement, while in futures or forex markets, tick sizes can vary depending on the specific contract or instrument.

In practice, ticks are used by traders to gauge the movement of prices over specific periods of time, and they help traders understand what price increments trades can be routed in. When a market moves by one tick, it means the price has changed by the smallest amount allowed in that market. In futures trading, for example, a move of one tick could represent a change in price of a fraction of a point, which can still have a meaningful financial impact depending on the contract size and the asset being traded. Investors and traders monitor tick movements closely because these small changes can accumulate over time, offering opportunities for profit, or signaling potential risks—especially in highly liquid markets where price changes happen quickly.

Understanding how ticks work is crucial for traders who wish to assess risk and manage positions effectively. Each tick movement is not just a small price change; it can also influence the financial performance of trades, especially in leveraged markets. So, while a single tick might not seem significant on its own, when multiplied by the size of a trader's position, the impact can be substantial.

Basis points (also known as "bips") are a unit of measurement used to express small changes in interest rates, particularly in the context of bonds and other fixed-income securities. One basis point equals 0.01%, or 1/100th of a percentage point. In the investment universe, this term is used to highlight changes in interest rates or yields, because minor movements can have significant implications, especially when it comes to large investments.

For example, if a bond's yield moves from 3.00% to 3.50%, that’s an increase of 50 basis points. This can significantly impact a bond's price, as bond prices and yields have an inverse relationship. A rise in yields (or an increase in basis points) typically causes bond prices to fall. For instance, if a bond has a 3% yield and its yield increases by 50 basis points, the bond’s price will decrease to adjust to the higher rate, which impacts anyone holding that bond. Understanding basis points is crucial for bond investors, because even small shifts in interest rates can lead to notable changes in bond prices and returns.

If the Federal Reserve raises its interest rate from 2.00% to 2.25%, this represents an increase of 25 basis points. Such a change can significantly affect everything from borrowing costs to stock market performance and bond prices. In the bond market, when interest rates increase by 25 basis points, the prices of existing bonds typically decline, as investors will demand higher yields to align with the new rate environment. In the context of loans or mortgages, a 25 basis point hike could result in higher monthly payments for borrowers. Understanding basis points is crucial for evaluating how interest rate changes impact both short-term and long-term investments.

It is sometimes necessary to convert “bips” to percentages. That’s because rates and price changes are sometimes quoted in basis points for precision. Because one basis point equals 0.01% (or 1/100th of a percentage point), you can convert bips to percentages by dividing the number of basis points by 100.

In the world of forex trading, a "pip" stands for "percentage in point" or "price interest point." A pip represents the smallest price movement that a currency pair can make based on traditional market convention. In most currency pairs, a pip is typically the fourth decimal place, or 0.0001. For example, if the EUR/USD pair moves from 1.1350 to 1.1351, it has moved one pip. The exception to this rule is currency pairs involving the Japanese Yen, where a pip is usually the second decimal place (e.g. 0.01).

Pips are essential for measuring changes in the exchange rates between two currencies and calculating profits and losses in forex trading. By understanding the value of a pip, traders can assess the potential impact of price movements and manage their positions more effectively. For example, if a trader buys EUR/USD at 1.1350 and the pair moves to 1.1400, they’ve made a 50-pip gain. Therefore, tracking pips helps traders quantify price movements and estimate potential profits or losses.

A "pippette" is a fraction of a pip, offering greater precision in measuring price movements within the forex market. A standard pip represents the fourth decimal place in most currency pairs (0.0001), while a pippette represents one-tenth of that amount, or the fifth decimal place (0.00001). For pairs involving the Japanese yen, a pip is represented by the second decimal place (0.01), while a pippette is the third decimal place (0.001).

To put the above in perspective, if the EUR/USD currency pair moves from 1.13500 to 1.13501, that would be a one-pippette move. Though the difference may seem miniscule, pippettes allow traders to track even finer price movements, making them especially useful in high-volume, low-margin trading strategies. While pips are generally used to discuss larger price shifts, pippettes provide additional insight into market fluctuations, allowing for refined risk management and trade execution.

To calculate pips in trading, you'll first need to understand how they apply to different currency pairs. A pip is typically the smallest price movement that a currency pair can make, and it is calculated based on the currency pair’s quoted price.