What do Ticks, Points, and Pips mean?

Ticks, points, and pips are units of price movement in financial markets. Futures market prices are counted in points, subdivided into ticks. Forex prices are counted in pips.

Binary option tick value and tick size

All Nadex binary options, including those based on forex, are denominated in ticks which have a value of $1. However, the minimum increment, the smallest possible price move, is 0.25, or $0.25 per contract.

The reason for this simple pricing is that the binary option price can only trade between zero and 100. The full value of the binary at expiration is $100, which will go to either the buyer or seller. Prior to expiration, the value will move in units of 0.25.

For binary options: the tick size in 1, the tick value is $1, and the minimum increment is 0.25.

Nadex spread tick value and tick size

For Nadex spreads, the tick size varies depending on the instrument, but the tick value is always $1.00. The minimum increment of price movement is equal to the tick size. The minimum increment isn’t subdivided into units of 0.25.

The pricing of spreads is designed to look like the underlying market price. However, the spread may have different tick sizes (minimum increments) than the underlying. For example, the US 500 spread contract has a tick size of 0.1 and tick value of $1, meaning that every movement of 0.1 in the spread price causes the dollar value of the spread to go up or down one dollar. In contrast, the underlying e-mini S&P 500 index futures contract has a tick size of 0.25 and tick value of $12.50.

One result of this pricing is that you can trade one spread contract with less risk exposure than if you traded the e-mini S&P futures. A move of 0.25 in the spread would only be equivalent to $2.50, instead of $12.50.

Forex spreads move in $1 pips

The price movement of Nadex forex spreads reflects (but doesn’t exactly follow) the movement of the underlying market, which is measured in pips. Therefore, the spread is also priced in pips.

However, unlike the underlying forex pair, in which the base currency is priced in terms of the quote currency, a Nadex spread is priced in US dollars, with one pip equal to one dollar. Thus the tick value is $1.

Some examples of minimum tick & value compared:

Contract Name Tick Size & Value Underlying Market Tick Size & Value
Crude Oil 0.01 = $1 NYMEX Crude Oil Futures 0.01 = $10
US 500 0.1 = $1 CME E-mini S&P 500® Index Futures 0.25 = $12.50
Wall Street 30 1 = $1 CBOT E-mini Dow® Index Futures 1 = $5
EUR/USD 0.0001 = $1 Spot EUR/USD exchange rate (mini) 0.0001 = $1

 

 

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