View source for Finance:Basis point

{{Short description|One hundredth of a percent (‱)}}
{{Infobox symbol
|mark=‱
|name=per ten thousand sign
|unicode = {{unichar|2031|Per ten thousand sign|html=}}
|see also= {{unichar|0025|Percent sign|nlink=}}<br />{{unichar|2030|PER MILLE SIGN|nlink = Per mille}} (per thousand)
}}
A '''basis point''' (often abbreviated as '''bp''', often pronounced as "bip" or "beep"<ref>{{cite web |url=http://www.investopedia.com/terms/b/beep.asp |title=Beep |work=[[Investopedia]]}}</ref>) is one hundredth of 1 [[Percentage point|percentage point]]. The related term ''permyriad'' means one hundredth of 1 percent. Changes of interest rates are often stated in basis points. If an interest rate of 10% increased by 1 basis point, it changed to 10.01%.<ref>{{cite web|url=https://www.investopedia.com/ask/answers/what-basis-point-bps/|title=Basis Point (BPS) Definition & How It's Used|author=Chad Langager|website=Investopedia}}</ref>

==Definition==
{{float right clear none|{{visualisation_parts_per.svg|250px}} }}
:1 basis point (bp) = 1‱, 0.1‰, 0.01%, 10<sup>−4</sup>, {{sfrac|1|10,000}}, or 0.0001.
:10 bp = 10‱, 1‰, 0.1%, 10<sup>−3</sup>, {{sfrac|1|1,000}}, or 0.001.
:100 bp = 100‱, 10‰, 1%, 10<sup>−2</sup>, {{sfrac|1|100}}, or 0.01.

Basis points are used as a convenient [[Unit of measurement|unit of measurement]] in contexts where percentage differences of less than 1% are discussed. The most common example is [[Finance:Interest rate|interest rate]]s, where differences in interest rates of less than 1% per year are usually meaningful to talk about. For example, a difference of 0.10 percentage points is equivalent to a change of 10 basis points (e.g., a 4.67% rate increases by 10 basis points to 4.77%). In other words, an increase of 100 basis points means a rise by 1 percentage point.

Like [[Percentage point|percentage point]]s, basis points avoid the ambiguity between relative and absolute discussions about [[Finance:Interest rate|interest rate]]s by dealing only with the absolute change in numeric value of a rate. For example, {{anchor|relative_vs_absolute}} if a report says there has been a "1% increase" from a 10% interest rate, this could refer to an increase either from 10% to 10.1% (relative, 1% of 10%), or from 10% to 11% (absolute, 1% plus 10%).  However, if the report says there has been a "100 basis point increase" from a 10% interest rate, then the interest rate of 10% has increased by 1.00% (the absolute change) to an 11% rate.

It is common practice in the financial industry to use basis points to denote a rate change in a [[Finance:Financial instrument|financial instrument]], or the difference ([[Finance:Yield spread|spread]]) between two interest rates, including the [[Finance:Yield|yield]]s of [[Finance:Fixed income|fixed-income]] [[Finance:Security|securities]].

Since certain loans and [[Finance:Bond|bonds]] may commonly be quoted in relation to some index or underlying security, they will often be quoted as a spread over (or under) the index. For example, a loan that bears [[Finance:Interest|interest]] of 0.50% per annum above the Secured Overnight Financing Rate (SOFR) is said to be 50 basis points over SOFR, which is commonly expressed as "S+50bps" or simply "S+50".

The term "basis point" has its origins in trading the "basis" or the spread between two interest rates.  Since the basis is usually small, these are quoted multiplied up by 10,000, and hence a "full point" movement in the "basis" is a basis point.  Contrast with [[Finance:Percentage in point|pips]] in FX forward markets.

[[Finance:Expense ratio|Expense ratio]]s of [[Finance:Investment fund|investment fund]]s are often quoted in basis points.<ref>{{cite news|last1=Constable|first1=Simon|title=What Is a Basis Point and Why Is It So Important?|url=https://www.wsj.com/articles/SB10001424127887324823804579017141254359828|access-date=2017-04-22|work=Wall Street Journal|publisher=Dow Jones|date=September 4, 2013 |ref=wsj|archive-url=https://web.archive.org/web/20161009013236/https://www.wsj.com/articles/SB10001424127887324823804579017141254359828|archive-date=2016-10-09|quote=Investors also refer to basis points when discussing the cost of mutual funds and exchange-traded funds. Typically, fund expenses are expressed as an annual percentage of assets. For instance, the "Investor" share class of Vanguard Total Stock Market Index, the largest stock mutual fund, has expenses of 0.17%, or 17 basis points.<br>When people compare fund expenses, they measure the difference in basis points. A fund with expenses of 0.45% is said to be five basis points more expensive than one with a 0.40% ratio.}}</ref>

==Permyriad==
A related concept is one part per ten thousand, {{sfrac|10,000}}. The same unit is also (rarely) called a '''permyriad,''' literally meaning "for (every) [[Myriad|myriad]] (ten thousand)".<ref>{{cite web|url=https://www.merriam-webster.com/dictionary/myriad|title=myriad|website=www.merriam-webster.com|access-date=9 April 2018}}</ref><ref>{{cite web|url=http://www.dictionary.com/browse/myriad|title=myriad|website=Dictionary.com|access-date=9 April 2018}}</ref>  If used interchangeably with basis point, the permyriad is potentially confusing because an increase of one basis point to a 10 basis point value is generally understood to mean an increase to 11 basis points; not an increase of one part in ten thousand, meaning an increase to 10.001 basis points. This is akin to the difference between [[Percentage|percentage]] and [[Percentage point|percentage point]]. 

===Unicode===
A permyriad is written with {{unichar|2031|PER TEN THOUSAND SIGN|html=}}<ref>{{cite web|url=https://www.unicode.org/charts/PDF/U2000.pdf|title=General Punctuation|publisher=The Unicode Consortium|access-date=17 Sep 2011}}</ref> which looks like a [[Percent sign|percent sign]] {{char|%}} with three zeroes to the right of the slash. (It can be regarded as a stylized form of the four zeros in the denominator of "{{sfrac|10,000}}", although it originates as a natural extension of the percent {{char|%}} and permille {{char|‰}} signs.)

== Related units ==
* [[Percentage point]] difference of 1 part in 100
* [[Percentage]] (%) 1 part in 100
* Per mille (‰) 1 part in 1,000
* [[Per cent mille]] (pcm) 1 part in 100,000
* [[Parts per million]] (ppm) 1 part in 1,000,000

== See also ==
* [[Physics:Parts-per notation|Parts-per notation]]
* [[Physics:Per-unit system|Per-unit system]]
* Percent point function
*[[Finance:Tick size|Tick size]]

==References==
{{reflist}}

==External links==
{{navbox punctuation}} <!-- and typographic marks -->
[[Category:Fixed income]]
[[Category:Interest rates]]
[[Category:Operations of central banks]]

{{Sourceattribution|Basis point}}