How To Understand Stock Market Points
- 1). Verify the type of stock market points you are viewing. There is a difference between points as they apply to individual stock and as they apply to stock market indexes.
- 2). Read points as dollars if you are talking about an individual stock. For example, if IBM stock is up 4 points, then it is up $4.
- 3). Interpret fractional points on individual stocks as percentages or fractions of a whole dollar. Historically, stocks did not trade in dollars and cents, but rather down to specifically dictated fractions such as 1/8, which is 1/8 of a dollar. Since stocks began to trade in cents instead of fractions, fractional points can also be equivalent to decimal points. For example, 4 1/2 points is equal to $4.50, and 4.50 points is also equal to $4.50.
- 4). Read points as "units of movement" when talking about changes in stock market indexes, NOT as dollar amounts. For example, a 50 point move (as in the Dow Jones Industrial Average was up 50 points today) does not represent an increase of $50 but rather an increase of units in the average. The value of a single unit fluctuates and is represented by the Dow Divisor.
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