A basis point is a unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument. One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form. In most cases, it refers to changes in interest rates and bond yields.
For example, if the Federal Reserve Board raises interest rates by 25 basis points, it means that rates have risen by 0.25% percentage points. If rates were at 2.50%, and the Fed raised them by 0.25%, or 25 basis points, the new interest rate would be 2.75%.
In the bond market, a basis point is used to refer to the yield that a bond pays to the investor. For example, if a bond yield moves from 7.45% to 7.65%, it is said to have risen 20 basis points.
The usage of the basis point measure is primarily used in respect to yields and interest rates, but it may also be used to refer to the percentage change in the value of an asset such as a stock. It may be heard that a stock index moved up 134 basis points in the day's trading. This represents a 1.34% increase in the value of the index.
The easiest way to convert basis points into a percent form is by simply taking the amount of basis points and multiply by 0.0001 which will give the percent in decimal form. So if you have to convert 384 basis points into a percent, simply multiply 384 by 0.0001. This will give you 0.0384 which is 3.84% (0.0384 x 100).
This can also be done in reverse to find out the number of basis points that a percent represents by dividing the percent (in decimal form) by 0.0001. For example, say the rate on a bond has risen 2.42%, simply take 0.0242 (2.42% / 100) and divide by 0.0001 to get 242 basis points.
(For more on interest rate changes, see our Bond Basics Tutorial.)

Why are bond yields calculated in terms of basis points?
Find out why financial analysts and publications track and quote bond yields in basis points, or bps, rather than simply ... Read Answer >> 
How are my total returns calculated?
My financial planner says my equity portfolio is up year to date after the fee (1.5%) 5 months into the year. Bonds are up ... Read Answer >> 
What is the difference between pips, points, and ticks?
Learn the differences between points, ticks and pips and how each are used by investors to measure price changes in stocks, ... Read Answer >> 
What does it mean when an investor moves a bond to equity?
... Read Answer >> 
What causes a bond's price to rise?
Learn about factors that influence the price of a bond, such as interest rate changes, credit rating, yield and overall market ... Read Answer >> 
Where did the term 'pip' in currency exchange come from?
Learn the definition of a pip, what it means in the scope of currency exchanges and how to determine its value. Find out ... Read Answer >>

Markets
A Common Base for Understanding Changes in Value
A discussion of basis points as well as basis point calculations using Excel. 
Managing Wealth
What Determines Your Cost Basis?
In any transaction between a buyer and seller, the initial price paid in an exchange for a product or service will qualify as the cost basis. When it comes to securities and related financial ... 
Managing Wealth
Cost Basis Basics
The term "cost basis" refers to the original value of a security you own. When you sell a stock, bond or mutual fund, you use the cost basis to determine your profit or loss, which in turn affects ... 
Investing
Get Positive Results With Negative Basis Trades
Capitalize on the difference in spreads between markets with this popular strategy. 
ETFs & Mutual Funds
How Interest Rates Affect Mutual Funds
Find out how changing interest rates impact mutual funds, including bond and money market funds, and how higher rates can discourage investors. 
Markets
Advanced Bond Concepts: Yield and Bond Price
In the last section of this tutorial, we touched on the concept of required yield. In this section we'll explain what this means and take a closer look into how various yields are calculated. ... 
Financial Advisor
Rising Rates: What It'll Mean for Stocks and Bonds
A look at what rising interest rates could mean for the equity and bond markets. 
Managing Wealth
5 Basic Things To Know About Bonds
Learn these basic terms to breakdown this seemingly complex investment area. 
Markets
Bond Basics: Yield, Price And Other Confusion
Investopedia Explains: Bond yield, Bond price, yield to maturity, the link between price and yield and bond price in the market. 
Markets
5 Fixed Income Plays After the Fed Rate Increase
Learn about various ways that you can adjust a fixed income investment portfolio to mitigate the potential negative effect of rising interest rates.

Points
1. A 1% change in the face value of a bond or a debenture. 2. ... 
Decimal Trading
A system in which the price of a security is quoted using a decimal ... 
Decimalization
A system where security prices are quoted using a decimal format ... 
Yield
The income return on an investment. This refers to the interest ... 
Bond Quote
The price at which a bond is trading. A bond quote is typically ... 
Bond
A debt investment in which an investor loans money to an entity ...