Reviewed by Aug 27, 2020| Updated on
What Is an Exit Point?
An exit point is a price an investor or trader must close a position at. Usually, an investor would sell to exit their investment while they buy long-term assets. A trader can sell at an exit point, or if they are short, can buy to close the gap.
The exit point can be calculated in advance, depending on the plan of a trader or investor. Or, it is possible to determine the exit point on the basis of real-time market conditions or life criteria such as liquidating other assets to pay a bill.
Understanding the Exit Point
Often an exit point is prepared, and an order is sent to activate the exit. Depending on how the price went after purchase, the exit point may result in a profit or loss. It is possible to use exit points to manage the risk of failure and also to set benefit objectives. Conditional instructions are typically used by investors to set exit points.
A bracketed buy order is one example of an exit strategy that incorporates premeditated exit points at the initial investment period. A bracketed purchase order is a conditional order which includes both a profit target as well as an exit stop loss point. In a bracketed purchase order, an investor purchases a safe, then, sets a profit target order at a specified price to lock in a benefit.
The stop loss will be set at a specified price to minimize risk in the event that the price moves in the opposite direction of the investor expectation. If one of the commands is hit, the other is cancelled because the location is closed now. The investor may vary the price of the stop-loss order and the benefit goal order depending on their risk tolerance and investment expectations.