Index points, contract sizes and what a point is worth

This is the lesson the rest of the track leans on. Everything about risk, stops and position size is arithmetic performed on this number, and until it is done the screen is showing you points rather than money.

A point is not a unit of anything

An index level has no natural units, as lesson 1 established. So a point is not a pound, a dollar or a percentage. It is one increment of an abstract number, and the money attached to it comes entirely from the contract you hold.

The contract size is the whole of it

Money per point, per contract, is set by the product: a cash position at £1 a point, a spread bet at £5 a point, a futures contract with a fixed multiplier per point. Same index, same move, different money.

So "the index moved 40 points" is not a statement about anyone's account. Two traders watching that move can be up £40 and £400, and both are holding the index.

The currency step people skip

An index settles in a currency. If your account is in a different one, every point converts before it reaches your balance - so your position size moves with the exchange rate as well as with the index.

On a dollar-settled index in a sterling account, a 5% move in the exchange rate changes what your position is worth by 5%, with the index doing nothing at all.

The habit worth building

Before a position exists, convert the stop distance into money. Not the entry, not the target - the distance to the point where you are wrong, in your own currency.

A stop 40 points away is a fact about a chart. The same stop at £7.90 a point is £316, and that is a fact about you. Only one of those two numbers can tell you whether the position is the right size, and it is not the first.