Break even point

Every position starts behind by the cost of dealing. The spread is paid at the moment of opening, because a position bought at the offer is valued at the bid; any commission and any accrued swap add to it. The break even point is the price at which the market has moved far enough to cancel that sum. Below it the position is behind even when the raw price move is favourable, which is the reason a position can show a gain on the chart and a loss on the statement.

It is most usefully expressed as a distance rather than as a price, because a distance is comparable across instruments and across account sizes. Stated that way it is the total cost divided by the value of one unit of price movement for the size being dealt, which returns an answer in the instrument's own increment. The distance is a property of the cost and the size only: it does not change with the direction taken, and it does not change with what the market subsequently does.

Two consequences follow directly. Frequency multiplies it, since each round turn pays the cost again, so a method taking many positions has to clear the distance many times over. And a wider cost moves the point further away, which is why the same method can be viable on one instrument and not on another with an identical price series. Practitioners differ over whether financing belongs in the calculation for a position held for minutes; nobody disputes that it belongs in one held for weeks.