A basis point (often abbreviated as bp, often pronounced as "bip" or "beep") is (a difference of) one hundredth of a percent or equivalently one percent of one percent or one ten thousandth. A very rarely used term,

permyriad A basis point (often abbreviated as bp, often pronounced as "bip" or "beep") is (a difference of) one hundredth of a percent or equivalently one percent of one percent or one ten thousandth. A very rarely used term, permyriad, means parts per te ...

, means parts per ten thousand, differing in meaning only in that basis points are normally used to express ''differences'' in parts per ten thousand. Figures are commonly quoted in basis points in

finance Finance is a term for the management, creation, and study of money In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, in the left corn ...

finance

, especially in

fixed income Fixed income refers to any type of investment To invest is to allocate money Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs ...

markets.

Definition

:1 basis point = (a difference of) 1

or one-hundredth of one percent. :1 bp = (a difference of) 1‱ or 0.01% or 0.1‰ or 10⁻⁴ or 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 A unit of measurement is a definite magnitude Magnitude may refer to: Mathematics *Euclidean vector, a quantity defined by both its magnitude and its direction *Magnitude (mathematics), the relative size of an object *Norm (mathematic ...

in contexts where percentage differences of less than 1% are discussed. The most common example is

interest rate An interest rate is the amount of interest In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investm ...

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 A percentage point or percent point is the unit (measurement), unit for the Difference (mathematics), arithmetic difference of two percentages. For example, moving up from 40 percent to 44 percent is an increase of 4 percentage points, but a 10-p ...

s, 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 Financial instruments are monetary contracts A contract is a legally binding document between at least two parties that defines and governs the rights and duties of the parties to an agreement. A contract is legally enforceable because it me ...

, or the difference ( spread) between two interest rates, including the

yield Yield may refer to: Measures of output/function Computer science * Yield (multithreading) is an action that occurs in a computer program during multithreading * See generator (computer programming) Physics/chemistry * Yield (chemistry), the amou ...

s of

fixed-income Fixed income refers to any type of investment Investment is the dedication of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance ...

securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...

. Since certain

loans In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money avai ...

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 In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money availa ...

of 0.50% per annum above the

London Interbank Offered Rate The London Inter-Bank Offered Rate is an interest-rate average calculated from estimates submitted by the leading banks in London London is the capital city, capital and List of urban areas in the United Kingdom, largest city of England an ...

(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. En lieu of referencing individual basis points for larger percentages, the below terms have been gaining traction and use in the financial industry. 1 "MegaBip" = 10 bps = 1‰ (0.1%) 1 "UltraBip" = 100 bps = 1% 1 "GigaBip" = 1000 bps = 10%

Expense ratioThe expense ratio of a stock fund, stock or asset fund is the total percentage of fund assets used for administrative, management, advertising (12b-1), and all other expenses. An expense ratio of 1% per annum means that each year 1% of the fund's to ...

s of

investment fund An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These ad ...

s are often quoted in basis points.

Permyriad

A related concept is one part per ten thousand, . The same unit is also (rarely) called a permyriad, literally meaning "for (every)

myriad A myriad (from Ancient Greek Ancient Greek includes the forms of the Greek language used in ancient Greece and the classical antiquity, ancient world from around 1500 BC to 300 BC. It is often roughly divided into the following periods: M ...

(ten thousand)". 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 In mathematics Mathematics (from Greek: ) includes the study of such topics as numbers (arithmetic and number theory), formulas and related structures (algebra), shapes and spaces in which they are contained (geometry), and quantities a ...

and

Unicode

A permyriad is written with which looks like a

percent sign The percent sign (or per cent sign in British English British English (BrE) is the standard dialect of the English language English is a West Germanic languages, West Germanic language first spoken in History of Anglo-Saxon Engl ...

with three zeroes to the right of the slash. (It can be regarded as a stylized form of the four zeros in the

denominator A fraction (from Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, known as Latium. Through the power of the Rom ...

of "", although it originates as a natural extension of the

percent In mathematics Mathematics (from Greek: ) includes the study of such topics as numbers ( and ), formulas and related structures (), shapes and spaces in which they are contained (), and quantities and their changes ( and ). There is no ...

percent

and

permille Per mille (from Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, known as Latium. Through the power of the ...

signs.)

Related units

Percentage point A percentage point or percent point is the unit (measurement), unit for the Difference (mathematics), arithmetic difference of two percentages. For example, moving up from 40 percent to 44 percent is an increase of 4 percentage points, but a 10-p ...

difference of 1 part in 100 *

Percentage In mathematics Mathematics (from Greek: ) includes the study of such topics as numbers (arithmetic and number theory), formulas and related structures (algebra), shapes and spaces in which they are contained (geometry), and quantities a ...

(%) 1 part in 100 *

Per mille Per mille (from Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, known as Latium. Through the power of the ...

(‰) 1 part in 1,000 *

Per cent mille A per cent mille or pcm is one one-thousandth of a percent. It can be thought of as a "milli-percent". It is commonly used in epidemiology Epidemiology is the study and analysis of the distribution (who, when, and where), patterns and risk factor, ...

(pcm) 1 part in 100,000 *

Parts per million In science Science (from the Latin word ''scientia'', meaning "knowledge") is a systematic enterprise that Scientific method, builds and Taxonomy (general), organizes knowledge in the form of Testability, testable explanations and predictio ...

(ppm) 1 part in 1,000,000

References

External links