Basis point

A basis point is one hundredth of one percentage point, so one hundred of them make a single percentage point. The unit exists because the word percent is ambiguous when it is applied to a number that is itself a percentage. A rate moving from four percent to four and a quarter percent has risen by a quarter of a percentage point and by roughly six percent of its own value, and both statements are correct. Twenty five basis points says the first and cannot be misread as the second.

Interest rate decisions, bond yields, swap rates and fund fees are all quoted in these units. A central bank moving its policy rate by a quarter of a percentage point is reported as a twenty five basis point move, and a fund charging one tenth of a percent a year is described as ten basis points. In writing the unit is abbreviated to bp or bps, and on a dealing desk it is pronounced beeps.

The confusion worth watching is between a change measured in basis points and a change measured against the starting level, because financial commentary uses both, sometimes in the same paragraph. The second is the meaningful measure for a price. The first is the convention for anything already expressed as a rate, and mixing them produces figures that differ by an order of magnitude while looking equally plausible.