Orbex Website uses cookies, by continue browsing you agree to and accept Our Cookies Policy. For more info click here
My Orbex
December 26, 2021 by admin
Break-even, or sometimes just breakeven, is actually an important concept within Forex.
It’s 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 for forex trading that comes from this concept.
Break-even comes from the Break-Even Point (BEP).
What’s that? Well, in terms of price action, it refers to the point where gains equal losses. Simple, right?
Join our responsible trading community – Open your Orbex account now!
In Forex, there’s 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?
So, first, you’ll 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.
Let’s say you buy one lot of EURUSD, and your broker has a 2 pip spread.]
If the market is at 1.1120, and you buy, you’ll notice that you are $2 in the red. This is because now that you’ve 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.
When the market goes up two pips, you’ll find your trade returns to 0.
With traditional bookkeeping, you might consider that as the break-even point, because if you close the trade, you’ll neither make nor lose money. Except that in order to open that trade, you had to take a risk, because if the trade didn’t go up again, it could have gone the other direction until it hit your stop loss.
There isn’t 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.
For example, let’s say you set your stop loss at 100 pips, and your strategy has a 70% win-loss ratio.
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 trade, while gaining an average of 70 pips per trade.
Those 30 pips are your cost of risk.
So, in order to find your “real” break-even, you have to consider your cost of the spread (2 pips), plus your cost of risk (30 pips), which would put your BEP on this example trade at 1.1152.
Considering this concept, it’s easier to factor in your profitability ratio over time and help keep your strategy producing a more consistent profit.
Orbex Global Limited is authorized and regulated by Mauritius Financial Services Commission “FSC” (View License), with registered address: Ground Floor, The Catalyst, Silicon Avenue, 40 Cybercity, 72201 Ebène, Republic of Mauritius.
Orbex Limited, Seychelles Company, registered under number 8429881-1 and regulated by the Seychelles Financial Services Authority (FSA) under Securities Dealer’s License number SD110 . The registered office is at 9A CT House, 2nd floor, Providence, Mahe, Seychelles.
Orbex.com is owned by Orbex Services Limited and is operated by Orbex Global Limited.
Orbex LTD – incorporated in Saint Vincent & the Grenadines under number 24885 IBC 2018) whose registered office is at First Floor, First St Vincent Bank LTD Building , James Street , Kingstown
The Comision National del Mercado de Valores (CNMV) has determined that Forex/CFDs are not appropriate for retail clients residing in Spain due to their complexity and high risk.
Orbex.com is operated by Orbex LLC, a company incorporated under the laws of SVG with the registration number (230 LLC 2019) and registered address at First ST Vincent Bank LTD Building, James Street, Kingstown, St. Vincent and the Grenadines.. Orbex Services LTD, registration number (HE 387329) , a company organized and existing under the laws of Cyprus, whose registered office is at Kato Polemidia, Limaasol, Cyprus ; a payment operator of Orbex LLC., by the laws of Cyprus acting as an agent on behalf of Orbex LLC.
Risk Warning: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange, you should carefully consider your investment objectives, level of experience, and risk appetite. There is a possibility that you may sustain a loss of some or all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts. Orbex does not offer its services to residents of certain jurisdictions such as the USA, Iran, North Korea, Indonesia, Mauritius, and Romania.
© 2024. All rights reserved