In the share market, BPS stands for Basis Point. It is a unit used to measure changes in the interest rate of financial instruments. Often abbreviated as bp, bips, or bps, basis points are a crucial tool for understanding fluctuations in interest rates.
Understanding Basis Points:
A basis point represents a small change in the value of a financial instrument. Specifically, it is equal to one-hundredth of a percent, or 0.01%. To convert a percentage into basis points, you simply multiply by 100. Conversely, to change basis points back into a percentage, you divide by 100.
Why Investors Rely on BPS:
Investors use basis points to express incremental changes in interest rates, particularly when dealing with securities like bonds or interest rate derivatives. Reporting in basis points helps avoid confusion, especially when the changes are smaller than one percent. By using this precise measure, investors can clearly indicate changes in rates for financial instruments like corporate bonds, treasury bonds, and credit derivatives.