Glossary · Execution
Basis Points
Also: bps, basis point
Published
Basis Points — A basis point (bp) is one hundredth of one percent, or 0.01%. Trading desks express spreads, fees, slippage, and market impact in basis points of notional so that costs are comparable across assets, sizes, and price levels; 25 basis points on a $10,000,000 trade is $25,000.
Why Desks Use Basis Points
Absolute price differences are not comparable across assets at different price levels. A move of one dollar is trivial in one asset and large in another. Expressing a cost as a fraction of notional in basis points makes an execution result on one pair comparable with a result on another, and makes fees, spreads, and slippage additive on the same scale.
Common Uses
Quoted spreads are often stated as the difference between bid and offer divided by the mid-price, in basis points. Execution cost analysis reports slippage against an arrival benchmark in basis points. Fee schedules on venues and settlement services are quoted in basis points of traded value. Market-making agreements specify maximum spreads in basis points.
Converting
Divide basis points by 100 to get a percentage: 50 bps is 0.50%. Multiply notional by the decimal value to get the cost: 0.0050 times $20,000,000 is $100,000.