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Basis point
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From Wikipedia, the free encyclopedia

This article is about the financial term. It is not to be confused with the electronic term Bias
point.

This article needs additional citations for verification. Please help improve this

article by adding citations to reliable sources. Unsourced material may be
challenged and removed.
Find sources: "Basis point" – news · newspapers · books · scholar · JSTOR (May
2010)  (Learn how and when to remove this template message)
 ‱
per ten thousand sign

In Unicode U+2031 ‱ PER TEN THOUSAND SIGN (‱)

Related

See also U+0025 % PERCENT SIGN

U+2030 ‰ PER MILLE SIGN (per thousand)

A basis point (often abbreviated as bp, often pronounced as "bip" or "beep" [1]) is one
hundredth of 1 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 bp, it changed to 10.01%.

Definition[edit]

Visualisation of 1%, 1‰, 1‱, 1 pcm and 1 ppm as fractions of the large block (larger version)

1 basis point (bp) = (a difference of) 1‱ or 0.01% or 0.1‰ or 10−4 or 1/10,000  or 0.0001.
10 bp = (a difference of) 0.1% or 1‰ or 10‱.
100 bp = (a difference of) 1% or 10‰ or 100‱.
Basis points are used as a convenient unit of measurement in contexts
where percentage differences of less than 1% are discussed. The most
common example is interest rates, 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 points, basis points avoid the ambiguity between relative
and absolute discussions about interest rates by dealing only with the
absolute change in numeric value of a rate. For example, 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 financial instrument, or the difference (spread) between two
interest rates, including the yields of fixed-income securities.
Since certain loans and 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 interest of 0.50% per annum
above the London Interbank Offered Rate (LIBOR) is said to be 50 basis
points over LIBOR, which is commonly expressed as "L+50bps" or simply
"L+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 pips in FX forward markets.
Expense ratios of investment funds are often quoted in basis points.[2]

Permyriad[edit]
A related concept is one part per ten thousand, 1/10,000 . The same unit is also
(rarely) called a permyriad, literally meaning "for (every) myriad (ten
thousand)".[3][4] 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 and percentage point.
Unicode[edit]
A permyriad is written with U+2031 ‱ PER TEN THOUSAND SIGN (‱)
[5]
 which looks like a percent sign  %  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 "1/10,000 ", although it originates as a natural extension of
the percent  %  and permille  ‰  signs.)

Related units[edit]
 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[edit]
 Parts-per notation
 Per-unit system
 Percent point function
 Tick size

References[edit]
1. ^ "Beep".  Investopedia.
2. ^ Constable, Simon (September 4, 2013).  "What Is a Basis Point and Why Is It So
Important?". Wall Street Journal. Dow Jones. Archived from the original  on 2016-10-09.
Retrieved 2017-04-22. 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.
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.
3. ^ "myriad".  www.merriam-webster.com. Retrieved  9 April  2018.
4. ^ "myriad".  Dictionary.com. Retrieved 9 April 2018.
5. ^ "General Punctuation"  (PDF). The Unicode Consortium. Retrieved 17 Sep  2011.

External links[edit]
  Media related to Basis point at Wikimedia Commons

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phe 

me 

nd 

m 

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minus 

ash 

e hyphen 

mark 

on mark 

ng 

ed ! and ? 

nctuation 

ign 

o sign 

l indicator 

sign 

e 

point 

mbol 
 sign 

nd minus signs 

ation sign 

ign 

minus sign 

re 

tical bar 

t 

ht symbol 

ecording copyright 

d trademark 

mark symbol 

k symbol 

 " "   quotation mark 
illemet 

  ⟨ ⟩   bracket 

mark 

r 
floral heart 

e 

๛    pilcrow (paragraph mark) 
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mark 

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 This page was last edited on 11 February 2023, at 23:42 (UTC).
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