Dictionary
Basis point
Capital MarketsOne hundredth of a percentage point, the standard unit for quoting rates and spreads.
Also written: bps, bp, basis points
One basis point is 0.01%, so 100 basis points is one percentage point. Rates, spreads, fees and margins are all quoted this way because the differences that matter are frequently smaller than a percent.
It exists to remove an ambiguity. Saying a rate rose by 1% could mean from 5% to 6% or from 5% to 5.05%; saying it rose 100 basis points cannot be misread.
Get a feel for the magnitudes. A 25 basis point central bank move is a standard step. A leveraged loan might price at 425 over the base rate. A 50 basis point difference in WACC is enough to move a long dated valuation by several percent.