Percentage points allow comparisons between percentages.
Point is a concept with a large number of meanings. On this occasion, we are interested in highlighting its meaning as a scoring or scoring unit. Percentage , for its part, is the adjective that refers to that which is expressed or calculated in a percentage amount.
To understand the notion of a percentage point , anyway, we must first know what a percentage is. It is the expression of a quantity in the manner of a fraction with 100 as the denominator. In other words, the percentage indicates a certain amount existing in every hundred units.
What are percentage points
Percentage points are used to name the difference between two percentages. Let's look at a concrete example .
A survey is carried out that determines that a political candidate X has a voting intention of 48% . This means that, of every 100 people surveyed, 48 stated that they intend to vote for candidate X. On the other hand, candidate Y reached a voting intention of 32% ( 32 individuals out of 100 showed an intention to elect him).
With these data , we can say that candidate X leads candidate Y by 16 percentage points . The concept of percentage points is used since the difference between the two is not 16% .
Taking two percentages into account, percentage points allow us to express the difference between the two.
Differences with basic points
What percentage points allow, in short, is to compare differences or changes between percentages. If unemployment in a country goes from 10% to 30% , it does not rise by 20% , but rather increases by 300% (initial unemployment tripled). This is where the notion of a percentage point appears: in that case, unemployment increased by 20 percentage points.
It is important to establish that, sometimes, two terms are often confused: basis points and percentage points. Specifically, within the scope of contributions, investments and interest rates, both are used and, although one may not know how to differentiate them, the following maxim must be taken into account: 100 basis points is equal to 1 percentage point.
Percentage points in the foreign exchange market
In the same way, it is interesting to know that, on a daily basis, within the field of the foreign exchange market, the use of percentage points is used. Specifically, these are used to be able to undertake the calculation of price movements. How is this operation done? Following these steps:
-The sale price must be subtracted from the purchase price. The result will allow you to have the total loss or gain in percentage points.
-To calculate the amount in dollars per percentage point, what you must do is know that each point of that type is equivalent to 0.0001 if the dollar is the quoted currency. In the event that the currency is a different currency, what must be done is to multiply that 0.0001 by the value it has in dollars.
-Likewise, the dollars must be multiplied by a percentage point, since this will allow the positioning of the size to be established.
-Then you will have to proceed to multiply the gain or loss in percentage points by the amount in the aforementioned US currency by points. In this way, it will be possible to know what that gain or loss is in dollars.