What is a Basis Point?

Submitted by Marco on 18 July, 2006 - 00:20

Definition of a Basis Point: A commonly used financial jargon in describing interest rates or forex trading price movements

In financial terms, a basis point is one percent or one hundred pips. For example, having a quote of 1.3493 EUR/USD - to move one basis point the currency would need to increase by 100 pips. So a move from 1.3493 to 1.3593 would be a move by one basis point.

Another example of a financial rates variation is when the interest rate is pushed higher by one percent (1%). In basis points, such a movement is called 100 basis points. Therefore a 0.25% increase or decrease is a 25 basis point move. Sometimes market commentators comment that the federal bank have raised rates by a quarter of a basis point, meaning the interest rate was hiked up by a quarter of a percent.

The example of a basis point

The example of a basis point is wrong.
When IR go up 1%, it means it goes up by 100 bp
please correct

*Thanks* I stand corrected.

*Thanks* I stand corrected.

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