Financial Jargon: What Is A Point In Stock Market?
So you’ve decided to start investing and have begun dipping your toes into the world of stocks. Good for you! Investing can pave the pathway towards securing your financial future.
But here’s the thing…one quick glimpse at your stock trading app or financial news headlines and it becomes apparent – there’s a whole dictionary of terms, metrics and jargon you suddenly need to know. It’s enough to make your head spin!
As you’re getting oriented, one common question arises around understanding stock points. What in the world is a “point”? And how does it differ from the percentage changes you might see? Understanding the distinction is key.
Over the next few minutes, we’ll walk through exactly what a point is, how it applies to individual stocks and entire indexes, and how it differs from related terms like percentages and basis points. I’ll use plenty of everyday examples so you can grasp the core ideas.
Arm yourself with this knowledge and you’ll be well on your way to decoding common investing lingo!
What Is A Point?
When people refer to stocks moving up or down a certain number of “points”, that literally means dollars. One point equals one dollar – it’s that simple!
So if you hear that hot new stock Bezos Enterprises increased 7 points today, it means the share price rose by $7. Likewise, if crowd-favorite TJ’s Taco Shop fell 3 points, traders are letting you know the stock price declined by $3 per share.
You’ll typically hear about point changes used to describe short-term stock price action – daily ups and downs or week-to-week movements. Points offer an easy way to convey how share prices fluctuated in dollars over a specific timeframe.
Now, while every point always represents $1 no matter what, the percentage impact can vary drastically depending on the actual stock price. Let’s look at an example to see why…
Say you had two stocks – Fancy Feast Foods (FFF) and Triple R Resources (TRR). FFF trades at $20 per share, while TRR trades at $100 per share due to the market valuing it higher.
If FFF drops 2 points (from $20 to $18), that’s a 10% decline. However, if TRR drops 2 points (from $100 to $98), it’s only a 2% dip. Both stocks fell by the same number of points, but significantly different percentage drops based on their prices!
So if someone just told you those companies fell 2 points, that statement alone lacks important context that the full picture provides. Keep that distinction in mind – points measure dollar changes while percentages show relative impact.
Key Takeaways About Points
To recap the key ideas around points:
- One stock point always equals $1 no matter what company or share price
- Two stocks can rise or fall the same number of points but see different percentage changes
- Points are specific to stocks – other assets like bonds or currencies use “basis points” (more on that later!)
In a nutshell, focus on points to express exact dollar amounts that stock prices changed, but also consider percentages to assess relative impact. Both metrics provide useful intelligence!
Now that you’ve got the core concept down, let’s contrast points to some related terms…
Points vs. Percentages vs. Basis Points
Beyond percentages, another important comparison to understand is basis points vs. points. You’ll often hear financial pros throw around the term “basis points”, but what does that mean?
Basis points represent a percentage change, not an absolute dollar amount. One basis point equals 1/100th of 1%.
For example, let’s say the 10-year Treasury bond yield rises from 2.00% to 2.15%. The financial news would convey that the yield increased by 15 basis points (not 15 points).
Or take currency movements. If the U.S. dollar is up 50 basis points against the Euro, it has risen 0.5% in value relative to that currency. Again, basis points describe the magnitude of percentage changes.
Compared to stocks, bond yields and currency exchange rates deal with much smaller fluctuations, so basis points allow greater precision. But don’t mix up the terminology – basis points indicate percentages while points for stocks simply mean dollars!
To drive home the difference, imagine how reports could wrongly portray market action if you interchange these terms:
“Breaking news – prominent stock PlumbTech fell 1000 basis points today as investors reacted to rising interest rates.” (Incorrect reference to basis points rather than point for dollar amount).
Or conversely:
“The yield on 10-year Treasuries rose 15 points this week in response to strong economic data.” (Incorrect use of points instead of basis points for % yield)
Using the proper financial verbiage helps avoid confusing situations like those! Now let’s shift gears and explore how points apply not just to individual stocks but entire indexes…
How Points Are Used For Indexes
Beyond single stocks, points are also used to illustrate marketwide index action. Indexes like the Dow Jones, S&P 500, Nasdaq and more track baskets of underlying stocks. So you’ll often hear about index levels rising or falling certain points based on the aggregate behavior of their components.
For indexes however, points don’t directly translate to $1 changes like with individual stocks. Most major indexes have levels above 1000…the Dow Jones hovers around 30,000 for example. So “1 point” doesn’t correspond to a $1 swing.
Instead, indexes use points more for labeling purposes as shorthand for relative changes in their value – one point means a one digit change. If the S&P 500 closed at 1503 yesterday and opens at 1513 today, the index gained 10 points overnight. Easy for grasping move direction and order of magnitude!
So remember – when discussing index points, focus more on conveying relative fluctuations rather than equating points to defined dollar amounts. Use index points to gauge intraday market strength and identify emerging trends across sectors.
And if you ever hear financial media exclaim “The Dow drops 1000 points!” understand that reflects meaningful selling pressure…just don’t take it literally as $1000!
Now that you know the scoop on points, let’s examine some historic perspective…
Largest Historical Point Moves
While most daily point moves amount to normal market “noise”, occasionally volatility explodes resulting in staggering swings. 2020 provided two prime examples:
On March 16, 2020 at the height of COVID-induced fear, the Dow Jones suffered its worst point drop ever, plummeting 2,997 points. While representing over 12% in percentage terms, emphasizing the raw point plunge illustrated the scale of carnage.
Yet just 8 trading days later on March 24th, the Dow executed its biggest point gain in history – rocketing 2,113 points higher! Traders awoke to fresh stimulus hopes that fueled a massive rally.
So amidst chaotic times, conveying point extremes helps quantify extraordinary market action – especially when large numbers better grab attention.
The takeaway? Understand that point moves primarily serve as shorthand for readily communicating trends, regardless whether the stock market rises or falls.
Now let’s break down some associated lingo to further build your investing vocabulary…
Semantically Related Terminology
Thus far we focused specifically on points, but properly interpreting market news depends on defining other relevant language:
Share – A unit of ownership interest in a publicly-traded company available for purchase. Investors buy shares through stocks.
Investor – An individual or entity that allocates capital with the expectation of future financial returns. Investors range from traders to long-term buyers.
Trading – The act of buying and selling financial instruments like stocks, bonds, derivatives and currencies to profit from price movements.
Buying – The accumulation of more investment assets by exchanging cash for securities like stocks or bonds.
Selling – The liquidation of investment assets by exchanging securities for cash proceeds.
Stock Market – The broad term encompassing all combined participants that facilitate the issuing, trading and valuation of company stocks.
And there’s many more relevant terms that compose common financial jargon! The investing language you’ll encounter continues evolving. But absorbing core ideas like today’s points lesson paves the way for tackling future concepts with greater confidence.
Now let’s tie together the key takeaways around points…
How Does the Stock Market Being Down Impact Points in the Stock Market?
The points in the stock market are directly impacted by the reasons for stock market decline. When the stock market is down, it can be due to various reasons like economic downturns, geopolitical issues, or corporate losses. These factors cause investor confidence to wane, leading to a drop in market points.
Key Takeaways
- When it comes to stocks, one point always equals one dollar no matter the company or share price
- Points convey exact dollar amounts that stocks rise or fall, while percentages show relative impact
- With indexes, points indicate relative changes but don’t directly correspond to dollars
- Know the difference between points and basis points – the latter expresses percentages
- Understand that historical point moves for stocks or indexes provide useful market context
Of course we just scratched the surface of investing terminology. But let this discussion serve as a primer for distinguishing points from other metrics. Whether listening to financial media or analyzing stock charts, you’ll now recognize points as short-hand for dollar changes.
You might still feel inundated by the investing lexicon, but don’t get discouraged! Consume information in bite-sized pieces, learn essential terms one concept a time like today, and gradually the language will feel more familiar.
Remember – even Wall Street pros had to start somewhere on their investing journey! So be proud of prioritizing financial education as the first step towards your money goals.
Conclusion
Today you boosted your investing IQ by demystifying the meaning of that often-cited yet confusing term “point” as it relates to stocks and indexes. Whether used for individual shares or broader benchmarks, points generally convey dollar changes in prices over set periods.
You also gained clarity on how points differ from percentages and basis points, avoiding a common source of confusion. Percentages demonstrate relative price impact while basis points denote fractional percentage shifts.
With this enhanced financial literacy, you walk away better prepared to parse future market news headlines that leverage points to characterize trading action. Over time, regularly decoding critical money concepts empowers smarter investment decisions!