For stocks, one point equals one dollar. So when you hear that a stock has lost or gained X number of points, it is the same as saying the stock has lost or gained X number of dollars.
Using points to describe share price gains, or declines, is generally done to describe short-term results, such as for the day or week.
Although one point always equals one dollar, the percentage value of a one-point movement can be different for two companies. Points refer only to the dollar amount that has changed, not the percentage. Two stocks can lose the same number of points but very different percentages.
- When you hear a stock has lost or gained X number of points, it's the same as saying the stock has lost or gained X number of dollars; one point equals one dollar.
- Since points represent actual dollar amounts, two stocks can rise or fall the same number of points—but register different percentage gains or losses.
- These stock points are not the same as basis points for bonds, or currencies.
- Index points are based on the relative movement of the components in the index.
How Points Relate to Financial Instruments
Points Are Not Percentages
Be careful not to confuse points with percentages or basis points (bps). When you hear someone say the stock dropped 10 points, the significance of that drop depends on how high the share price is.
It is important to note that this point and dollar amount refers strictly to stocks and nothing else. People often talk about indexes, bond prices, or currencies being up or down X number of basis points, which are different. One basis point is equal to 1/100th of a percent, so if someone says the dollar is up 50 basis points, that means it is up 0.5%.
Let's consider a simple example: If the fictional company TSJ Sports Conglomerate loses four points, dropping from $12 to $8, it would have experienced a 33% drop in the share price. This decline is dramatically different from a four-point drop experienced by a company like Cory's Tequila Co., which is trading at $104. If its stock drops $4.00 to $100, the move represents only a 3.8% decline.
Points and Indexes
Points are not just used when discussing individual stocks; they're also often employed to refer to short-term moves in equity indexes, as in "the Dow Jones Industrial Average gained 20 points today" or "the S&P 500 is down 100 points for the week." Because these indexes are dealing with companies that are worth billions of dollars, points work as a kind of shorthand to indicate changes in the collective value. Being able to say, "The Dow was up 100 points," instead of, "The stocks of the companies in the Dow gained $784,356,102.001, give or take a few thousandths," tended to be much less unwieldy.
With indexes, the points still represent dollars, but the ratio is not 1:1. A point is just a whole number in the index value. To understand what the points signify, you need to have an idea of the current value of a stock index.
The significance of a point change is magnified when dealing with stocks that trade at lower levels.
What Are Point Changes in a Stock Index?
When the price of an index rises or falls by $1, it is called a "point." Because an index is composed of many stocks held at various weights, a point move is the result of different stocks in the index rising and falling at varying degree, but with the next effect being a $1 change to the index's overall value.
Why Is Percentage Change Better than Point Change?
Percentage change gives a better reflection of what is happening on an apples-to-apples basis. Say you have two stocks, one trading at $10, one at $100. Given a one point drop, the first falls by 10%, but the second by only 1%. Thus, the point move in the first stock is a much steeper and more severe drop. Because of this, when somebody talks about a stock index rising or falling by X points, be sure to frame it in percentage terms as well.
What Is the Largest Ever Point Drop and Gain in the Dow Jones Index?
The Down Jones Industrial Average (DJIA) fell by 2,997 points on March 16, 2020, in reaction to the the COVID19 pandemic. On the 24th of March, 2020, the Dow saw its largest-ever point gain of 2,113. During March and April of 2020, the market experienced great volatility due to COVID fear and uncertainty. Note the largest percentage drop in the index was October 19, 1987 (known as Black Monday), when the Dow fell over 22.5% in a single day.