In trading, the breakeven point is the price level at which a trader neither makes a profit nor incurs a loss on a trade. At the breakeven point, there is a net profit of zero as the total gains is equivalent to the total losses. It is at the point at which the market price of an asset, such as a stock, currency, or commodity, is equal to the purchase price, plus any associated trading costs such as fees or commissions.
The breakeven point serves as a useful tool for investors to assess the risk-reward ratio of their trades. It can also be helpful for traders to determine the minimum price level required to make a profit.
A trader buys a stock at $10 per share and spends an additional $1 per share on the associated trading costs, making the total cost of each share $11. The breakeven point would then be $11 per share. If the price of the stock rises to $12 per share, the trader would make a profit of $1 per share, while if the price of the stock falls to $9 per share, they would incur a loss of $1 per share and $2 in total, including the trading fees they have paid to open and close the trade.
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