Basic point

The basic point is a unit of measurement used in the financial world that refers to one hundredth of 1%, that is, 0.01%. It is common to use the basic point when talking about interest rates or returns.

Basic point

On a daily basis we hear or read news related to financial markets or interest rates that refer to variations in basic points. Surely you have ever wondered what a basic point is and what it is used for. In this article we explain it to you in a simple way, you will simply have to learn a fixed relationship.

To know what a basic point is, we will take 1% as a reference. The basic point is one hundredth of that 1%, which translates to 0.01%. In this sense, 1% is 100 basis points. The use of the basic point makes it easier to understand the variations suffered by a certain percentage.

Added to this, errors are also reduced since it is not the same to express that, for example, the profitability of an asset has risen from 7.2% to 7.8% than to say that it has risen 60 basis points. It is an easier way to understand fluctuations of a percentage.

Basic points example

Suppose that our investment portfolio had a cumulative return of 15.3% until last week. After a bullish week in the financial markets, profitability increased to 17.4%. The percentage difference is 2.1% while the increase in percentage points is 210 basis points.

Here is an explanatory table of the relationship between basis points and percentage:

Percentage Basic points
0.01% 1
0.1% 10
0.5% fifty
1% 100
10% 1,000
75% 7,500
100% 10,000

In conclusion, a basic point is one hundredth of 1%. It is a term widely used in the field of investment and interest rates. It is common for news reports to refer to variations in the price of different assets or in the risk premium, for example, using the unit of measurement of the basic point.