✔️ Information reviewed and updated in December 2023 by Eduardo López
Unlike basic math where we speak in simple terms, in the world of trading this can change radically. That is why here we will talk about the basic point, a somewhat complex term that, without a doubt, you must know to operate more intelligently.
➡✨ How do we define the basic point?
The basic point is best defined as the minimum unit of variation of a type. This basic point is related to the Pip, a term used in Forex which represents the price difference in the Spread of an asset.
The basic point is used for a large number of variations of all kinds, for example, interest rate, exchange rate or principal rate. That is why you are likely to find it in a large number of markets and too, in a large number of assets.
➡✨References of the types in the market
Within the market and rates, we do not talk about percentages but rather talk about basic points, since this is the term used for it.. If there is a variation between 2% and 2.5%, for example, the difference of 0.5 is not expressed as 0.5% but as 50 basis points.
So, if you see that they speak of variations of 20, 30 or 56 basis points or basis points, then you will understand the reason for this expression. The way these changes are expressed is in basic points, there is no other term or way.