What are Basis Points?

What are Basis Points?

Basis points (bps) are a unit of measure in finance, equal to 0.01% (1/100th of a percent). They are used to express changes in interest rates, bond yields, and other financial metrics to ensure precision and clarity in describing small percentage changes. This allows for accurate communication in financial markets, where even minor changes can be significant.

1. Definition: A basis point represents 0.01%, so 100 basis points equal 1%.
2. Usage: They are commonly used to express changes in interest rates, bond yields, and other financial percentages to avoid confusion when dealing with small percentage changes.
3. Precision: Basis points provide a clear and precise way to discuss small changes in financial metrics, which can be significant in financial markets.

In summary, basis points are a financial unit equal to 0.01% used for precisely describing percentage changes in interest rates and other financial values.