Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Quick Take: Just What Is a Basis Point?

By Joe Magyer - Updated Oct 12, 2018 at 2:51PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A snippet of Wall Street terminology explained.

One of the many frequently used pieces of Wall Street jargon tossed out at investors by the financial press is the term "basis points." This term is most often bandied about when discussing financial ratios or changes in interest rates.

What is a basis point? Put simply, a basis point is equal to one-hundredth of one percentage point, or 0.01%. Writers use the terminology because it is precise when dealing with small absolute figures. Plus, high-minded terminology makes them sound like cool, seasoned industry insiders.

Five 3D percentage symbols hovering above the outstretched hand of a man wearing a suit

Image source: Getty Images.

An example of a headline using this phrase would be "Fed Boosts Rates 25 bps." In English, that means that the Federal Open Market Committee raised its target for the Federal Funds rate by 0.25%. Another example would be if gross margins at Dell fell from 17.8% to 17.1%, you could say that they decreased by either 70 basis points (bps) or by 0.7%.

See, that wasn't so hard! Of course, one explanation of Wall Street jargon always leads to two more questions. For more answers on Wall Street jargon, check out our super-useful Fool's School and its glossary of financial terms, or cruise by Foolish discussion boards Terms, Definitions, and Jargon or Ask a Foolish Question.

Foolish editor Joe Magyer is still chapped that his roommate's sister ate that leftover burger in the fridge. Sure, it was her burger and all, but Joe was soon to move in for the kill. Joe does not own shares in the lone company mentioned in this article, though he notes that Dell is a selection of both Inside Value and Stock Advisor. The Motley Fool has a seasoned disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/03/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.