Break Even Point - BEP

Break even point is used to determine the point when we can exit the trade so that we were on the basic level, without any loss, but also without any profit. It is also used to set the re-Stop Loss once the market moves in the desired direction.

If we buy (or sell - see Shorting) and the underlying asset price will then rise, we are making money. In a certain moment we can move our initial Stop Loss on the level of BEP. If there is a trend reversal, the Stop Loss would stop the trade on the level of Break even point so the trade in not loosy neither a profitable one.

Beware: Break even point is not equal to the entry price. It is necessary to add also all other costs to the BEP so we really wouldn’t make any loss. This means that we should add e.g. the Commissions of our broker to the entry price. Besides, traders also add some slippage (the difference between the desired and the real price). Stop Loss can be set to 100 cents, but in fact after the activation of our stop order, the contract is sold for just 98 cents. And this means additional costs. Average Slippage on the market we trade, therefore, should also form the basis for calculating the break even point.

In short, we can say that the Break even point includes:

BEP = Acquisition costs + Broker's commissions + Slippage + Other optional costs

Break even point is in fact a Stop Loss moved to a level where we are neither porfitable nor in a loss. Many traders use it, so it belongs to the Money Management elements. Once the Stop Loss is equal the Break even point, some of the traders do not move it higher (lower, if we went Short). They want to give the market enough space to breathe, while having a nice assurance that the trade will not end as a lossy one for them.