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 would be equal to £1 of profit returned.
