Break Even
Quick Answer
Break even in trading is the point at which a position produces neither a net profit nor a net loss after the relevant costs are considered. The break-even price is often close to the entry price, but spreads, commissions, financing charges and other applicable costs can shift the actual level required to achieve a zero net result.
How does Break Even work?
A trade reaches break even when its gains and losses offset each other.
In the simplest case, assume a trader buys an asset at:
$100
and there are no trading costs.
If the position is later closed at:
$100
the price gain is:
$100 − $100 = $0
The trade has therefore broken even.
Real trading can be more complicated because transaction costs may apply.
For a long position, the market may need to rise above the original entry price before the trader reaches a true net break-even result.
For a short position, the market may need to fall sufficiently below the entry price to compensate for applicable costs.
Key features of Break Even
Several characteristics are important when interpreting break even:
No net profit or loss: At break even, the overall result is effectively zero after relevant costs.
Entry price may not equal break-even price: Spreads, commissions, financing and fees can create a difference.
Direction matters: Long and short positions reach break even through different price movements.
Position size matters: Transaction costs that depend on trade size can alter the total amount required to break even.
Holding time may matter: Financing or overnight costs can change the break-even level over time.
Multiple entries can change the calculation: If a position is built at several prices, the relevant reference point may be its weighted average entry price.
Simple Break Even example
Suppose a trader buys:
100 shares at $50
Total purchase value:
100 × $50 = $5,000
Assume the total trading costs associated with opening and closing the position are:
$20
To recover that $20 cost across 100 shares, the required additional amount per share is:
$20 ÷ 100 = $0.20
The simplified break-even selling price becomes:
$50.00 + $0.20 = $50.20
If the shares are sold at $50.20:
Gross price gain = 100 × $0.20 = $20
After subtracting the assumed $20 of costs:
Net result = $0
The trade has broken even.
This example is illustrative only. It does not represent FxGrow commissions, spreads, financing charges or trading conditions.
Potential benefits and uses
Understanding break even can help traders evaluate a position more accurately.
It may be useful for:
identifying the price required to recover transaction costs;
comparing current price with average entry price;
evaluating open-position profitability;
assessing the effect of commissions and financing;
reviewing whether a closed trade actually produced a positive net result;
analysing positions built through several entries.
Traders sometimes also use the phrase “move the stop to break even”. This generally means adjusting a stop-loss order toward an entry or calculated break-even level after the market has moved favourably.
However, a stop placed at the original entry price may not guarantee a zero net result because spreads, commissions, slippage and other costs may still apply.
Risks, limitations and common misconceptions
A common misconception is that closing a trade at exactly the entry price always means the trader breaks even.
That is only true if there are no applicable costs.
For example, commissions, spreads, swaps or financing costs can leave a trade with a net loss even when entry and exit prices are identical.
Another misconception is that a break-even stop guarantees there can be no loss. Stop orders may execute at a different price from the requested level during volatile conditions or price gaps. Costs may also mean the nominal entry price is not the true economic break-even level.
Break even should also not be confused with profitability. A strategy can have many break-even trades while still producing an overall loss after losing trades and costs are included.
Finally, the term can have a different meaning in corporate finance. A business break-even point typically describes the level at which revenue equals total costs. In trading, the term usually refers to the point where the net result of a position is approximately zero.