A basis point (BPS) is a standard measure for interest rates and other percentages in finance, representing one-one hundredth of one percent.
Basis points are also used when referring to the cost of mutual funds and exchange-traded funds.
The “basis” in basis point comes from the base move between two percentages, or the spread between two interest rates.
One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument.
The relationship between percentage changes and basis points can be summarized as follows:
1% change = 100 basis points and 0.01% = 1 basis point.
Basis points are typically expressed in the abbreviations “bp,” “bps,” or “bips.”