What Is Basis Points?
A basis point (bp or bps) equals 1/100th of one percent (0.01%). 100 basis points = 1%. The unit is used to avoid ambiguity when discussing percentage changes. Saying "interest rates rose by 25 basis points" is clearer than "rates rose by 0.25%," which could be confused with a relative change.
How Basis Points Works
Basis points are the standard language of finance: the Fed raises rates by 25 bps, a trading fee is 5 bps, a yield difference is 50 bps. In crypto, exchange fees range from 1-10 bps for makers and 5-50 bps for takers. DEX swap fees are typically 5-30 bps. These seemingly small numbers compound into significant costs over many trades.
Why It Matters for Traders
Thinking in basis points trains precision. The difference between a 5 bps fee and a 10 bps fee doubles your trading costs — across 1,000 trades, that could be 5% of your capital. Similarly, when evaluating DeFi yields, a 50 bps difference in APY between protocols is meaningful at scale. Precision at the basis point level is what separates professional traders from retail.
