Editing Basis point (section)

==Definition==
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:1 basis point (bp) = 1‱, 0.1‰, 0.01%, 10<sup>−4</sup>, {{sfrac|1|10,000}}, or 0.0001.
:10 bp = 10‱, 1‰, 0.1%, 10<sup>−3</sup>, {{sfrac|1|1,000}}, or 0.001.
:100 bp = 100‱, 10‰, 1%, 10<sup>−2</sup>, {{sfrac|1|100}}, or 0.01.

Basis points are used as a convenient [[unit of measurement]] in contexts where percentage differences of less than 1% are discussed. The most common example is [[interest rate]]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]]s, basis points avoid the ambiguity between relative and absolute discussions about [[interest rate]]s by dealing only with the absolute change in numeric value of a rate. For example, {{anchor|relative_vs_absolute}} 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]], or the difference ([[Yield spread|spread]]) between two interest rates, including the [[yield (finance)|yield]]s of [[fixed income|fixed-income]] [[security (finance)|securities]].

Since certain [[loans]] and [[Bond (finance)|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]] of 0.50% per annum above the [[Secured Overnight Financing Rate]] (SOFR) is said to be 50 basis points over SOFR, which is commonly expressed as "S+50bps" or simply "S+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 [[Percentage in point|pips]] in FX forward markets.

[[Expense ratio]]s of [[investment fund]]s are often quoted in basis points.<ref>{{cite news|last1=Constable|first1=Simon|title=What Is a Basis Point and Why Is It So Important?|url=https://www.wsj.com/articles/SB10001424127887324823804579017141254359828|access-date=2017-04-22|work=Wall Street Journal|publisher=Dow Jones|date=September 4, 2013 |ref=wsj|archive-url=https://web.archive.org/web/20161009013236/https://www.wsj.com/articles/SB10001424127887324823804579017141254359828|archive-date=2016-10-09|quote=Investors also refer to basis points when discussing the cost of mutual funds and exchange-traded funds. Typically, fund expenses are expressed as an annual percentage of assets. For instance, the "Investor" share class of Vanguard Total Stock Market Index, the largest stock mutual fund, has expenses of 0.17%, or 17 basis points.<br>When people compare fund expenses, they measure the difference in basis points. A fund with expenses of 0.45% is said to be five basis points more expensive than one with a 0.40% ratio.}}</ref>