A basis point (BPS) is a unit of measurement that represents a change of 0.01%. It’s used to describe the change in the value or rate of a financial instrument.
How is it used?
- Interest rates: Basis points are used to describe changes in interest rates, such as when a bank increases the interest rate on a loan
- Stock market: Basis points are used to describe price changes in the stock market
- Exchange-traded funds and mutual funds: Basis points are used to describe the cost of these funds
- Currency exchange rates: Basis points are used to describe changes in currency exchange rates
- Bond market: Basis points are used to measure the yield of bonds
Why is it used?
Basis points are useful when describing small percentage changes, where even small changes can have a big impact. For example, a 100 basis point increase in an interest rate means the rate has increased by 1%.
How is it written?
Basis points are often written as “bp,” “bps,” or “bips”.
