Basis point definition

A basis point (also referred to as bp – pronounced bip or beep) is a unit used in trading to describe movements in interest rates or other percentages. It is equal to one hundredth of one percent, or 0.01%.

The basis point is used because changes in percentage rates involved in trading are often less than 1%. Central bank base rates, for instance, can have a major impact when changed by just a few basis points. The same is true for changes in the yield available from certain investments. If $10,000 is invested in an instrument with a yield, then each basis point move upwards would be equal to $100 of profit returned.

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For more information on when basis points are used, visit the education section.

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