The Language of Day Trading Profits

Like any specialized field, stock trading has its own language. Since day trading often deals with small shifts in the market, understanding the terminology of small price changes is important for any day trader. Profits are discussed differently in different markets, so you are likely to hear some or all of these words, depending on what you are trading:

• Pennies: Shares are traded in decimal form, so each price movement is worth at least a penny – one cent. It is a straightforward way to measure profit.

 

• Pips: A pip is the smallest unit of currency that can be traded. In the foreign exchange (Forex) markets, a pip is generally equal to one hundredth of a cent. If the value of the euro moves from $1.2934 to $1.2935, it has moved a point.

Don’t confuse the pip in the forex market with the investment scheme known as PIP, sometimes called People in Profit or Pure Investor. (The fraud also operates in the name of HYIP, High Return Investment Program.) PIP was promoted as a trading system with guaranteed daily return, but it is really a pyramid scheme that takes money from participants and returns little or nothing. You can get more information from the SEC’s website.

• Points: A point is one percentage point. A penny is a point, as is a 1 percent change in the price of a bond. The associated number, the base point, is a percentage or .0001.

 

• Teenies: Many securities, especially bonds and derivatives on them, trade in increments of 1/8 of a dollar. Half an eighth is a sixteenth, also known as a small.

 

• Tick: The brand is the smallest trading increase in a futures contract. It varies from product to product. The amount of work required depends on the contract structure. For the CME E-Mini S&P 500 contract, the mark equals $12.50, calculated as a 0.25 change in the underlying S&P 500 index multiplied by the $50 multiple. The tick mark on the Chicago Board of Trade E-Mini soybean contract is $1.25, calculated as 1/8 cent on a bushel of soybeans in a contract covering 1,000 bushels. You can get information about the volume of contracts that interest you on the website of the offer exchange.