When someone says a U.S. stock price went up or down by a certain number of points, they are simply referring to dollars. Similarly, stock points in international stock markets refer to units of the local currency, such as British pounds in London or euros in Frankfurt. Points used to measure stock market indexes like the Dow Jones industrial average or the Standard & Poor's 500 index aren't exactly dollars, but they're related to the dollar values of the stocks that make up the indexes.
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When it's a stock sold on a U.S. market, stock points simply refer to dollars in the stock price. Stock points are different from basis points, which are typically used to measure interest rates.
Share Prices and Stock Points
On modern stock markets, you can track the prices of stocks in real time. You can obtain prices for stocks through brokerage websites, financial news and information websites, financial news shows on television and numerous other sources. In the United States, stock prices are typically given in dollars.
Monitor stock prices to determine if you want to buy or sell shares of the stock. You can also set what's called a limit order with a stock brokerage to automatically buy or sell the stock when the price crosses a certain threshold.
Tracking Stock Points
Stock markets are generally open a limited number of hours per day, and news reports often focus on how much prices of particular stocks rose or fell during the trading day. These price fluctuations can be given as percentages or as changes in dollars, what are called stock points. In the U.S., a stock point is the equivalent of a dollar, so a five-point increase in a stock price is equivalent to a $5 increase.
In other countries, points refer to whatever currency the stock is trading in. If you're not sure what currency is being used to describe stock prices, research the market where that stock is traded.
Points in Index Values
In addition to stock prices, you may see quotes for the values of various stock market indexes, such as the Dow, the S&P 500 and the Nasdaq index. These values are often measured in points, as in, "the Dow rose 50 points today." Each index value is determined by the values of a set of stocks that make up the index. For the Dow, that's a group of 30 blue chip stocks, and for the S&P 500, it's a set of the stocks of 500 large U.S. companies.
These points don't exactly correspond to dollars, because they're determined by a complex weighted average of the stocks that make up the indexes, but they are derived from the dollar value of the underlying stocks. You generally will not hear people refer to the index values in dollars, and the index values can't be directly compared as they could if they were share prices. For instance, just because the Dow index point value is higher than the S&P 500's, it doesn't mean the Dow is more valuable or performing better.
If you want to invest in predicting the values of stock market indexes, you can put money into index funds that track their values. Shop around for an index fund with good fees from a fund provider you trust.
Interest Rates and Basis Points
When speaking of interest rates, you may hear references to basis points. This refers to 0.01 percent, or a one-hundredth of a percent. For instance, if an interest rate goes from 4.52 percent to 4.57 percent, it has gone up five basis points. These points can't be compared to market or index points. When the interest rate goes up from, say, 4.5 percent to 5.5 percent, that difference is often referred to as a percentage point.
Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.