{"id":162351,"date":"2019-12-23T11:45:30","date_gmt":"2019-12-23T16:45:30","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=162351"},"modified":"2019-12-23T10:07:26","modified_gmt":"2019-12-23T15:07:26","slug":"what-does-break-even-mean-in-forex","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2019\/12\/what-does-break-even-mean-in-forex\/","title":{"rendered":"What Does \u201cBreak-Even\u201d Mean In Forex?"},"content":{"rendered":"
December 23, 2019<\/div>
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By <\/strong>Orbex<\/strong><\/a><\/p>\n

Break-even, or sometimes just breakeven, is actually an important concept within Forex.<\/p>\n

It\u2019s important for trading in any security, and for the same reasons. In fact, there is an entire trading strategy that works around it.<\/p>\n

Going by the definition, it might seem like a simple idea, but there is an important implication for forex trading that comes from this concept.<\/p>\n

Break-even comes from the Break-Even Point (BEP).<\/p>\n

What\u2019s that? Well, in terms of price action, it refers to the point where gains equal losses. Simple, right?<\/p>

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Hold on a Second<\/strong><\/b><\/h2>\n

In Forex, there\u2019s more to gains and losses than meets the eye. We have to take into account risk, because accounting for risk is part of the losses side of this equation that many people forget. How does that work?<\/p>\n

So, first, you\u2019ll probably have noticed there are two prices on your trading platform: the sell and buy price. When you enter the market, you get a difference from the price action which is the spread.<\/p>\n

A Sample Trade<\/strong><\/b><\/h2>\n

Let\u2019s say you buy one lot of EURUSD, and your broker has a 2 pip spread.]<\/p>\n

If the market is at 1.1120, and you buy, you\u2019ll notice that you are $2 in the red. This is because now that you\u2019ve bought, you now have to sell in order to close the trade. And the sell price is two pips lower, to account for the spread.<\/p>\n

When the market goes up two pips, you\u2019ll find your trade returns to 0.<\/p>\n

With traditional bookkeeping, you might consider that as the break-even point, because if you close the trade, you\u2019ll neither make nor lose money. Except that in order to open that trade, you had to take a risk, because if the trade didn\u2019t go up again, it could have gone the other direction until it\u00a0hit your stop loss.<\/a><\/p>\n

So Where is the Break-E<\/strong><\/b>v<\/strong><\/b>en Point?<\/strong><\/b><\/h2>\n

There isn\u2019t a universal number; it depends on your forex trading strategy and risk profile. But, a rule of thumb is to calculate how likely you were to lose on that trade.<\/p>\n

For example, let\u2019s say you set your stop loss at 100 pips, and your strategy has a 70% win-loss ratio.<\/p>\n

That means there was a 30% chance that when you took that trade, you would lose 100 pips. In other words, if you iterate your trades over a long enough period, you will lose 30 pips on average per\u00a0trade, while gaining an average of 70 pips per trade.<\/p>\n

Those 30 pips are your cost of risk.<\/em><\/p>\n

So, in order to find your \u201creal\u201d break-even, you have to consider\u00a0your cost of the spread<\/a>\u00a0(2 pips), plus your cost of risk (30 pips), which would put your BEP on this example trade at 1.1152.<\/p>\n

Considering this concept, it\u2019s easier to factor in your profitability ratio over time and help keep your strategy producing a more consistent profit.<\/p>\n

By <\/strong>Orbex<\/strong><\/a><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By Orbex Break-even, or sometimes just breakeven, is actually an important concept within Forex. It\u2019s important for trading in any security, and for the same reasons. In fact, there is an entire trading strategy that works around it. Going by the definition, it might seem like a simple idea, but there is an important implication […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-162351","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/162351","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=162351"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/162351\/revisions"}],"predecessor-version":[{"id":162364,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/162351\/revisions\/162364"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=162351"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=162351"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=162351"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}