what is base point

What Is a Basis Point?

A basis point (bp) is a unit used to measure small changes in interest rates, yields, or fees. One basis point equals 0.01%, and 100 basis points equal 1%. This precise measurement helps avoid confusion between “percentage points” and “percentages” when discussing rate changes.

You’ll often see phrases like “increased by 25 basis points” in news or announcements, which means the original rate has been raised by 0.25%. For example, if the interest rate rises from 2.50% to 2.75%, that’s an increase of 25 basis points. Because financial prices can be highly sensitive to even minor changes, the basis point has become a universal language for such adjustments.

Why Are Basis Points Used for Interest Rates and Yields?

Basis points are widely used for interest rates and yields because they provide a clear way to express even the smallest changes, eliminating ambiguity between “percentages” and “percentage points.”

In the interest rate markets, factors like bank loan rates, bond yields, and fund fees often change by only a few to several dozen basis points—yet these small shifts can have a significant impact on overall costs or returns. Communicating in basis points allows for consistent understanding across trading, risk management, and settlement. For example, if a loan rate moves from 5.00% to 5.05% (a change of just 5 basis points), the total interest paid on a large loan can increase noticeably.

How Do You Convert Basis Points to Percentages and Numbers?

The relationship between basis points and percentages is fixed: 1 basis point = 0.01%, or 0.0001 in decimal form.

Step 1: Convert basis points to percentages. N basis points = N × 0.01%. For example, 25 basis points = 0.25%.

Step 2: Convert the percentage to a decimal for calculation. 0.25% = 0.0025 (since 0.25 ÷ 100 = 0.0025).

Step 3: Multiply the decimal by your principal or rate base to determine the absolute impact. For instance, if your annualized interest rate increases by 25 basis points and you borrow 10,000 USDT, the extra interest paid in one year would be: 10,000 × 0.0025 = 25 USDT.

How Are Basis Points Used in the Crypto Market?

In the crypto market, basis points are used in scenarios such as lending rates, yield products, funding rates for derivatives contracts, and trading fee adjustments. APR (Annual Percentage Rate) and APY (Annual Percentage Yield) frequently appear alongside basis points—APR refers to the annualized rate without compounding, while APY accounts for compounding effects.

For example, if you see “APR increased by 20 basis points,” it means the annual rate has risen by 0.20%. If “APY decreased by 15 basis points,” the annual compounded yield dropped by 0.15%. In perpetual contracts, the “funding rate” is a periodic fee exchanged between long and short positions to maintain price alignment—its minor adjustments are also typically described in basis points.

How Do Basis Point Changes Affect Your Costs and Returns?

Changes in basis points directly affect borrowing costs, investment returns, or trading fees. The scale of impact depends on your principal amount, holding period, and whether compounding is involved.

For example: Borrowing 10,000 USDT with an APR rising from 5.00% to 5.05% (+5 basis points) means you’ll pay an extra 10,000 × 0.0005 = 5 USDT in interest over one year. For a loan of 30,000 USDT, that increment becomes 15 USDT. Similarly, if a yield product’s rate rises by 25 basis points (0.25%), you’d earn an additional 25 USDT on a 10,000 USDT investment in one year; with compounding (APY), the long-term difference grows even more.

Trading fees are also commonly quoted in basis points. If a maker fee increases from 6 basis points to 8 basis points, that’s a change from 0.06% to 0.08%. The higher your trading volume, the more substantial the total fee difference will be.

How to Track Basis Point-Related Fees on Gate

On Gate, rates and fees are usually displayed as percentages, but announcements and communications often describe changes in terms of basis points. Here’s how you can keep track:

Step 1: Check “funding rates” and related announcements in the contracts section to understand what it means when periodic fees are “raised or lowered by several basis points.”

Step 2: On leveraged borrowing or yield pages, review the displayed annual rates (APR/APY). When you see an announcement like “increased by X basis points,” multiply X by 0.01% to compare with the percentage shown on the page.

Step 3: Pay attention to fee adjustments or event details—changes are often presented in basis points, enabling you to quickly estimate how your costs or returns might change based on your current position or investment size.

Tip: Always refer to platform pages for actual displayed rates; if compounding (APY) is involved, factor in both time and compounding frequency for final returns.

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

Basis points and percentage points are not the same thing. One basis point = 0.01%, while one percentage point = 1% = 100 basis points.

A change from 2% to 3% is an “increase of one percentage point,” which equals “an increase of 100 basis points.” However, percentage growth is relative: moving from 2% to 3% is actually a 50% increase. Therefore, “an increase of one percentage point” is not the same as “an increase of 100 percent.” Using basis points or percentage points helps avoid confusion between absolute and relative changes.

Common Misunderstandings and Risks When Using Basis Points

Common mistakes include: confusing basis points with percentages (mistaking five basis points for 5%), miscalculating conversions between APR and APY due to neglecting compounding, or underestimating the cumulative effect of small basis point changes in large or high-leverage scenarios.

Potential risks involve dynamic fee adjustments—minor changes in basis points can add up to significant cost or return differences over long periods or large amounts; for funding rates on contracts, shifts across different cycles can affect your position costs. Before making borrowing, investing, or trading decisions, always confirm how rates are quoted, their frequency, and whether compounding applies.

Summary: Key Takeaways on Basis Points

Basis points provide a clear way to express small changes in interest rates, yields, or fees—1 bp = 0.01%, and 100 bp = 1%. They’re crucial both in traditional finance and crypto markets for eliminating confusion between percentages and percentage points while allowing quick cost or return estimates. Understanding how basis points work—and being aware of conversion methods and common pitfalls—will help you make more informed decisions about borrowing, investing, or trading.

FAQ

How much is one basis point in money or percentage terms?

One basis point (bp) equals 0.01%, or one ten-thousandth (0.0001). In other words, 100 bp = 1%. If you have assets worth 10,000 units, a movement of one bp equals one unit; a movement of fifty bp equals fifty units. Using basis points allows for precise descriptions of small changes in interest rates or fees.

Why do financial markets use basis points instead of just percentages?

Basis points eliminate ambiguity and calculation errors. For instance, saying “the rate rose from 5% to 6%” can be unclear—is that a rise of one percent or one percentage point? But stating “up by 100 basis points” leaves no doubt. In crypto markets, changes in exchange fees or lending rates are often very small; using basis points makes data more straightforward and readable.

How do I interpret trading fees and basis points on Gate?

On Gate, trading fees are usually shown as percentages or in basis points. For example, spot trading fees might be listed as 0.2%, which equals twenty basis points—so buying or selling crypto worth 10,000 units incurs a fee of twenty units per trade. Futures or leveraged trading fees may be even lower (like five bp); check Gate’s fee schedule page to see your specific rate tier in bp.

Will changes in basis points actually affect my returns?

Absolutely. For example, if your borrowing rate drops from an annualized 5% to 4.5% (a decrease of fifty bp), you’ll save fifty units per year on a loan of ten thousand units. If trading fees decrease from twenty bp to fifteen bp, transacting one million units per month would save you five hundred units monthly. Over time, the compounding effect of even minor bp changes can be significant—especially for high-frequency traders who should always seek optimal rates.

Do I need to monitor fluctuations in basis points over time?

It depends on your trading strategy. Lending rates and spot transaction fees are relatively stable and don’t require constant attention; however, futures funding rates—which are measured in bp—can fluctuate daily and should be checked regularly if you’re active in derivatives trading. On Gate, you can always view current rates in the fee center or related pages and adjust your strategy accordingly based on market conditions.