In business and finance, the break-even point is used in many areas. In accounting, it refers to the point at which total production revenue equals total production costs. On the other hand, the investment break-even point is reached when the initial cost equals the current market price. When the market price of the underlying asset reaches the break-even point in an options trade, the buyer will not incur a loss.
Breakeven is the point at which your trade neither makes nor loses money.
It is also known as the price at which you have entered into a trading position.
In terms of price action, it is the level at which the risk on the trade is recovered.
For example, if you buy GBP/USD at 1.4050 and then you close the position at 1.4050 with zero profit and zero loss, you “break even”.
Some traders like to move their initial stop loss price to the original entry price once the current price has moved in their favor.
Here’s a real-world example:
You buy GBP/USD at 1.4050
You set an initial stop loss at 1.4010.
Price rises to 1.4090.
You change stop loss to 1.4050 (breakeven level).
If the price falls back to 1.4050, your trade neither makes a profit nor a loss. It is a breakeven trade.
How to Calculate Breakeven Percentage
To calculate the breakeven percentage, here’s the formula:
Breakeven % = (Stop Loss / (Profit Target + Stop Loss)) x 100