Break-Even

In trading, break-even is reached when total revenue exactly covers total costs – in other words, once all costs have been deducted, there is neither a profit nor a loss. Costs include, for example, order fees and commissions, the spread, financing costs for positions held overnight and charges for data feeds or trading software. Depending on the country, taxes on trading profits may also need to be factored into the calculation.

If the result rises above this threshold, the trader is in profit; if it falls below it, the trader is making a loss. The point at which the profit zone and the loss zone meet is called the break-even point (BEP).

Example

A trader buys 100 shares at $50 and pays a commission of $10 when opening the position and another $10 when closing it. Total costs come to $20, or $0.20 per share. The share price therefore has to rise to $50.20 before the trade breaks even; only above this level does it produce a real profit. In forex and CFD trading, the spread has the same effect: every new position starts with a small loss and first has to move by at least the spread to reach break-even.

Why it matters for traders

Knowing the break-even point shows how far the market has to move before a trade pays off. This is particularly important for short-term styles such as scalping, where costs account for a large share of each trade's result. Traders also use the term in two other ways: they speak of a "break-even stop" when the stop-loss is moved to the entry price to secure a position, and the risk-reward ratio determines what hit rate a strategy needs to break even over many trades.