Basis point
One hundredth of a percent.
A basis point is one hundredth of one percent: a hundred basis points make one percent. Traders count in them because the numbers that matter are often that small. A commission of five basis points, a funding rate of one basis point per eight hours, an edge of seven basis points per trade.
The unit keeps two things honest at once. It makes small edges visible: "seven basis points per event" sounds like nothing and, over fifty thousand events, is the whole story. And it makes costs comparable to edges: if a trade costs thirty basis points to enter and exit and the rule earns twenty, the rule loses, however clever it is. Most published anomalies live and die in that comparison.
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Where this word comes up
First needed in the log entry H-042 · The post-earnings bounce did not survive our cost assumptions.
From the same entry: Backtest, Buy the dip, Correction for looking twice, Gross edge, Index membership, Large caps, Net return, Post-earnings drift, Pre-registration, Published anomaly, Quarterly results, Real costs, RSI indicator, Short side, Survivors only, Terciles.