How To Understand Stock Market Points

The average stock market returns over the past three decades have been ​10.72 percent​, or ​8.29 percent​ when adjusted for inflation. No matter which way you look at it, over the long term, investing in the stock market will increase your wealth significantly. Therefore, it helps to educate yourself about every aspect of investing and learn all the relevant stock terms.

For example, you could start with points in stock market. It is one of the stock terms that you will likely hear about a lot. But it may have different meanings, depending on what people are discussing.

What Are Points In Stock Market?

Usually, points in stock market will depend on whether you are talking about an individual stock or a stock market index.

Stock Points Relative to Individual Stocks

Generally, a point is a dollar when used to describe individual stocks. So, when someone talks about a company stock that has gained or lost X number of points, they are describing the amount in dollars that the share value has appreciated or depreciated.

For example, suppose someone says, “Company XYZ’s stock lost 10 points yesterday due to the scandal. It is expected to lose double that today as more details of the fraud come out.” In that case, the commenter is simply saying that company XYZ’s stock value depreciated by $10 yesterday, and today, it is expected to lose an additional $20 in value.

On the other hand, if someone talks about how Amazon’s stock is up by 10 points today, it simply means that the share value has risen by $10.

It is worth noting that if you are interested in foreign stock markets, a point will be based on one unit of whichever currency you will be dealing with. For example, for the London Stock Exchange, a point will refer to one pound.

Stock Points Relative to Stock Market Indices

A stock market index is a subset of the stock market that determines the overall stock market performance by measuring the change in the share prices of various company stocks that have been selected. Depending on the index in question, experts usually find the sum of the selected underlying company stocks and divide it by the divisor to obtain a weighted average.

There are three primary stock market indexes. These include the Nasdaq Composite, S&P500 and the Dow Jones Industrial Average (DJIA).

The Nasdaq Composite includes nearly all the trading companies within the Nasdaq stock exchange, while DJIA consists of the 30 largest company stocks as measured by their market capitalization. On the other hand, the S&P Index consists of a whopping 500 of the largest company stocks.

Therefore, when one talks about points in stock market while referring to the market indexes, they are discussing the changes within the indexes due to what is happening to the underlying stocks within them. And these changes are not related to dollar amounts. Instead, it refers to a whole number associated with the index value.

For example, suppose experts state that the DJIA has increased by 400 points from 10,000 points. In that case, it means the DJIA index has increased from 10,000 to 10,400 points. Typically, such an increase would represent an average improvement in the value of the underlying stocks.

It is worth noting that an improvement in a similar basket of stocks within one index may be represented by a different set of points in another. That’s because the indices vary in their composition and how they may be calculated.

While points give you a broad view of how the stock market is performing, they do not provide context. To obtain that context, you will likely need to see the percentage change of the stocks in which you are interested. Having all the relevant information is necessary if you are to make the correct investment decision.