Basis Point [BP;BPS]

A basis point (often abbreviated as ‘bp’ or ‘bps’ for plural) is a unit of measurement equal to 1/100th of 1 percent, or 0.01%. In decimal form, one basis point equals 0.0001. This precise measurement is crucial in finance where small changes can have significant impacts. For example, if the Federal Reserve raises interest rates by 25 basis points, they’re increasing rates by 0.25%. If a bond yield moves from 3.50% to 3.75%, it has increased by 25 basis points. Basis points eliminate ambiguity: saying rates increased by 1% could mean from 5% to 6% (100 basis points) or from 5% to 5.05% (5 basis points). They’re used for interest rates, bond yields, credit spreads, and fee calculations. In a $1 million transaction, 50 basis points equals $5,000. Financial professionals use basis points daily for precision in communications.