basis points

A unit of measure equal to 1/100th of 1 percent (0.01%) used to describe changes in interest rates, yields, and financial percentages.

Basis points are a standard unit of measure in finance used to express changes in percentages, particularly interest rates, bond yields, and profit margins. One basis point is equal to 0.01%, or 0.0001 in decimal form. Using basis points eliminates ambiguity when discussing rate changes; for example, saying a 10% interest rate increased by 1% could mean it rose to 11% (an absolute increase) or 10.1% (a relative increase). Saying it increased by 100 basis points clearly indicates it rose to 11%. For investors, tracking basis points is essential for understanding fine movements in central bank policy rates, bond market yields, and corporate margin expansions or contractions. It allows for precise comparison of financial metrics over time or across peer groups. In fixed income, yield spreads are almost exclusively quoted in basis points. A widening or narrowing of a spread by even a few basis points can signal shifting market perceptions of risk, economic health, or monetary policy direction.

A company expands its gross margin from 40.0% to 40.5%. The absolute change is 40.5% - 40.0% = 0.5%. To convert this to basis points: 0.5 100 = 50 basis points.