Understanding Points In The Stock Market
In our last post about understanding the stock market, a visitor named Shirley asked about points in the stock market. In this post I will explain what people who cover or talk about the stock market mean when they refer to “points”
When someone says a stock went up or down 3points today, what they are referring to is that the stock went up or down $3 in value. This is quite different when talking about the DOW (aka: Dow Jones Industrial Average, DJIA), in this case it’s referring to the gage that is used to average out the entire market. Right now the DOW is sitting at around 8500 points, If the DOW falls 100 points, it would mean that it would be around 8400 points.
The second way you will hear someone mention points is when they talk about the Federal Reserve Bank and the interest rate that is charged by them when they lend money to any financial institution. In this case, the value that they put on points (you will also hear it refer to as “basis points”) is much less. 1 point is equal to 1/100th of one percent. Let’s say the interest rate at the moment is 2.5% and you hear on the news that the Federal Reserve Bank lowered the rate by 50 basis points. That would mean that the new interest rate is 2%. This point measurement scale is also used when dealing with bonds and treasury bills.
There a few other ways that the term “points” are used. Many of them would be too much to explain on this site. Basically they refer to some sort of measurement or another within the stock market, including real estate, mortgages and loans.
Tags: basis points, dow jones industrial average, federal reserve, point measurement, points in the stock market, treasury bills, Understanding The Stock Market