A unit which the traders used to explain a percentage used to show the changes in the value of financial tools is known as Basis Point.
It is equal to one-hundredth of one percent, or 0.01%.
A basis is also referred to as bp, which is pronounced “bip or beep.”

What is basis point?

A basis point is used for the measurement of the value change of assets or a change in interest rates.
It shows the change which is expressed as a percentage of the value.
The basis point indicates the percentage fraction that means one basis Point might show a change of 0.01 percent whereas a 100 percentage change may be 10,000 basis point in terms of bps.
Similarly, a basis point denotes one-hundredth of one percent (1/100 of 1 percent).
The translating basis point to percentage is done by dividing the basis point by 100.
Translating percentage change to basis point is done by multiplying the percentage by 100.
For example, a change in an instrument is stated to be 80 basis points. The conversion is as follows:
80 basis point to percentage = 80/100 = 0.8%
Look at another example, the change for another instrument is 2%. The conversion is as follows:
2% to basis points = 2 x 100 = 200 basis points.

What does basis point mean?

When confusion occurs for the changes are explained in percentage only, this kind of measurement is needed.
For example, it is difficult to understand saying that the rate of 10 percent has a positive change of 2 percent
So is the change from the current 10 percent to 12 percent or the increased rate is 10.2 percent?
To get rid of such misunderstanding changes are explained in basis points.
When something changes by 20 basis points, it is clear that the change is 0.20 percent.
The basis points might show a change in the interest rates, bond yields, stock prices, and other financial assets.

Interest Rate Example

The current interest rate is 1 percent.
According to a central bank it will increase its benchmark interest rate by 50 basis points.
So the new interest rate would be:
1 percent + 0.5 percent (or 50 basis points) = 1.5 percent