When someone refers to "points" in relation to the New York Stock Exchange (NYSE), it can mean a couple things depending on the context. It could refer to a change in the price of an individual stock listed on the NYSE. It could also refer to a change in an index that tracks the performance of the market.
Points as Dollars
The term "point" in reference to an individual stocks represents $1 worth of value. For example, if a company's stock is reported to be up 3 points in trading means that the share price has risen $3 since the start of the trading day. Note that this relationship -- one point equals $1 -- holds true only for stocks. In reference to bond prices and market indexes, such as the Dow Jones industrial average, the term "points" means different things.
It's All Relative
The point increase or point decrease of a particular stock's price doesn't reveal much information on its own. What it means depends on where the price started. For example, a 3-point change on a stock that started at $10 a share is a significant swing as it represents 30 percent of the stock's value. A 3-point change on a $50 stock is still noteworthy, but not as severe. At the same time, when a stock is trading for hundreds of dollars a share, a 3-point swing is not as significant.
Points in the NYSE Composite
The NYSE publishes a market index, the NYSE Composite, which tracks the total value of securities traded on the exchange. The index incorporates share prices of hundreds of U.S. and foreign companies, and expresses the total in points. On this index, one point does not equal $1. Rather, the index was set at a baseline of 5,000 points in January 2003 and is continually adjusted to account for swings in share prices, stock splits, mergers, spinoffs, new stocks joining the NYSE, delisted stocks and other factors. For example, if the index is at 7,500 points, it's telling you that the value of NYSE-traded securities is up about 50 percent from the January 2003 baseline. Just like with stock prices, the significance of a one-point swing -- or a 10-point or 100-point swing -- in the NYSE Composite will depend on where the index started.
Other indexes, such as the Dow Jones indexes, the S&P 500 are also expressed in points. As with the NYSE Composite, these points are not meant to be interpreted as dollar equivalents. You may also hear the term "basis points" used in relation to investments. Basis points refer to percentages. One basis point equals one-hundredth of a percentage point. So a security that rises "10 basis points" isn't up $10, but is up one-tenth of a percentage point, or 0.1 percent.
Cam Merritt is a writer and editor specializing in business, personal finance and home design. He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens"publications. Merritt has a journalism degree from Drake University and is pursuing an MBA from the University of Iowa.