bps meaning

What Is a Basis Point?

A basis point (bps) is a unit of measurement used to express small changes in rates, yields, fees, and similar financial figures. One basis point equals 0.01%, or one one-hundredth of a percent. It is commonly used to describe changes from "A%" to "B%," providing a more granular and less ambiguous metric than percentages.

In banking, bond markets, forex, and crypto derivatives, announcements often state, "increased by 25 basis points" or "spread of 150 basis points." In percentage terms, these are 0.25% and 1.50% respectively, giving readers a clear sense of the change's magnitude.

Why Are Basis Points Clearer Than Percentages?

Basis points eliminate confusion that can arise from phrases like "increased by 0.25%," which could mean an absolute increase of 0.25 percentage points or a relative increase of 0.25% on the original figure. Using "25 basis points" unambiguously means an increase of 0.25 percentage points.

When numbers are very small (for example, 0.03%), percentages can be visually confusing; writing "3 basis points" is more straightforward. Across different markets and languages, basis points reduce inconsistencies in communication, making announcements, contracts, and reports more standardized.

How Do You Convert Basis Points to Percentages and Percentage Points?

Basis points, percentages, and percentage points have fixed relationships: 1 percentage point = 100 basis points; 1 basis point = 0.01%, which is one one-hundredth of a percentage point.

Step 1: Determine whether the context is describing a "change in value" or a "current level." Basis points are typically used for changes.

Step 2: Convert units. Since 1% = 100 basis points, 25 basis points = 0.25%, 7 basis points = 0.07%, and 12.5 basis points = 0.125%.

Step 3: Apply to the original value. For example, if an interest rate increases from 2.00% by 25 basis points, the new rate is 2.00% + 0.25% = 2.25%.

For example: If a fee drops from 0.20% to 0.12%, that's a decrease of 0.08 percentage points = 8 basis points. If a report states "spread widened by 15 basis points," it means an increase of 0.15 percentage points.

How Are Basis Points Used in Interest Rate and Bond Markets?

Basis points are primarily used to describe changes in policy rates, loan rates, government and corporate bond yields, and the "spread" between two bond yields.

For instance, if a benchmark rate rises from 3.50% to 3.75%, it can be described as an increase of 25 basis points. If a corporate bond yield is 150 basis points higher than a government bond of the same maturity, the risk premium is 1.50 percentage points.

In bond pricing, every movement of one basis point in yield results in a corresponding price change. Professionals use metrics like "value per basis point" to gauge sensitivity; for retail investors, it's enough to know that a change of several dozen basis points in yield can cause significant price swings.

Common Uses of Basis Points in Crypto Markets

In crypto markets, basis points are used to express funding rates, lending rates, staking APYs, and fee tiers for market making and order matching. For example, a "funding rate of 0.03%" equals 3 basis points.

On exchange fee or tier pages, you might see rates listed as "10 bps" or "0.10%". Both are equivalent: 10 basis points = 0.10%. When reviewing Gate’s fee and product information, if you see "bps" or "%", you can convert between them to assess trading costs.

For perpetual contracts, funding rates are typically settled at fixed intervals. Even small changes of a few basis points can add up for high-frequency traders or large positions. Minor adjustments in lending or savings product rates can also impact long-term returns.

Understanding Costs Using Basis Points for Fees and Spreads

Fees and spreads are often quoted in basis points for easier comparison across platforms. An 8-basis-point fee equals 0.08%. For a trade with a notional value of $10,000, that’s roughly $8 in fees.

The spread (the difference between best bid and ask) narrowing from 12 to 7 basis points means better liquidity and lower slippage costs. For market makers, arbitrageurs, or high-frequency traders, even small improvements of a few basis points can meaningfully affect strategy profitability.

When viewing fee rates for different account tiers or products on Gate, you can convert between "bps" and "%": "10 bps" equals 0.10%, while "0.06%" equals 6 basis points—helping you calculate both per-trade and cumulative costs.

What’s the Difference Between Basis Points and Percentage Points?

Percentage points represent the absolute difference between two percentages; basis points are a finer unit: 1 percentage point = 100 basis points.

Moving from 1.00% to 2.00% is an increase of 1 percentage point or 100 basis points; from 1.00% to 1.50% is an increase of 0.5 percentage points or 50 basis points. Saying "up by 50%" refers to relative change and is not the same as "up by 50 basis points."

How Do Basis Points Relate to Risk Management?

In leveraged trading, fixed-income products, or large transactions, even a few basis points can translate into significant profit or loss because “basis points × notional size = absolute amount.” The larger the size or longer the period, the more pronounced the cumulative effect.

For example, if the funding rate is 3 basis points (0.03%) on a $1 million position, each settlement costs about $300; over multiple settlements in a year, the cumulative cost can be substantial. A lending rate increase of 20 basis points will significantly raise costs for long-term large holdings.

Any activity involving capital and leverage carries risk—always estimate fees and spreads in basis points before trading, and manage your position sizes and leverage according to your own risk tolerance.

How Can You Read Basis Points Efficiently in Announcements and Reports?

When you encounter "basis point" data in announcements or reports, use this three-step approach to quickly understand and quantify its impact:

Step 1: Identify context—determine if it’s describing a “change” or “current level.” Most often it’s about change.

Step 2: Convert units—turn basis points into percentages: 1 basis point = 0.01%, so 10 basis points = 0.10%.

Step 3: Apply to notional—multiply the converted percentage by your notional amount or original rate to find the change in cost or income. Finally, confirm the billing period (per transaction, daily, every eight hours, annually) and whether the figure is annualized.

For example, if an announcement states “fee reduced by 5 basis points,” and your typical trade size is $50,000, your per-trade cost drops by $50,000 × 0.05% = $25; if charged daily, multiply by trading frequency to estimate annual impact.

Key Takeaways on Basis Points

A basis point is the standard unit for measuring small changes in interest rates, yields, and fees; one basis point = 0.01%. Using basis points avoids confusion between percentages and percentage points and is widely used for interest rates, bond spreads, fees, trading spreads, and crypto funding rates. Mastering the equivalence “1% = 100 basis points” allows you to interpret financial data clearly on platforms like Gate—first identify context, then convert units and apply them to actual amounts for precise cost and risk evaluation. For any capital-related activity involving leverage or accumulation effects, remember that even minor changes in basis points can have significant consequences.

FAQ

I’ve heard that people confuse basis points with percentage points—how can I quickly tell them apart?

Basis points (bps) and percentage points are entirely different units. A basis point is one one-hundredth of a percent (0.01%), while a percentage point refers to the unit difference between two percentages themselves. For example, if an interest rate rises from 2% to 3%, that’s an increase of one percentage point but an increase of 100 basis points. Remember this formula: one percentage point = 100 basis points—and confusion disappears.

On crypto trading platforms, if the fee is listed as 0.1%, how many basis points is that?

0.1% equals 10 basis points. The conversion is simple: percentage × 100 = number of basis points. So: 0.1% × 100 = 10 bps. Conversely, if a platform says fee is “25 bps,” it means your cost is 0.25%. Expressing fees in basis points makes figures more precise and helps avoid confusion with decimal places.

Why do I see rate fluctuations labeled in basis points on crypto exchanges?

Using basis points for rates and fees highlights small but important changes with precision. Lending rates and market maker spreads in crypto often fluctuate by dozens or hundreds of basis points—basis point notation makes these shifts easier to grasp at a glance. For example, if a lending APR drops from 5.50% to 5.25%, that’s down by 25 bps—a quick way to spot subtle changes in your costs.

If I want to know the risk premium on a crypto asset, which unit should I use?

Risk premium is typically quoted in basis points—it represents how much extra yield you earn versus a risk-free asset. If a token offers yields that are 500 bps higher than a stablecoin, that means it pays an extra 5%. Basis points are especially useful for risk assessment since different assets’ risk premia often differ by just a few hundred bps—making comparisons clearer.

When reading platform announcements with numbers in bps, how do I quickly judge if they’re big or small?

Remember these key benchmarks: fees between 1–50 bps are typical; interest rate moves of 50–200 bps are common; risk premiums above 300 bps suggest higher risk assets. When you see a figure in bps, divide by 100 to convert to percent—then compare that percent against your total trading costs or yields for intuitive impact assessment.