What is an 'Exit Point'

An exit point is the price at which an investor sells an investment. The exit point can be decided and integrated at the time of an initial investment or it may become part of the investment strategy over time.

BREAKING DOWN 'Exit Point'

An exit point can be a consideration in a variety of different types of investments. Active investors can use various types of conditional orders to integrate exit points and an exit strategy into their securities investments. Investors in private companies will also typically have an exit strategy plan when investing large amounts of capital.

Active Trading Strategies

In securities trading, exit points can be used to manage the risk of loss and also to set profit targets. Investors commonly use conditional orders to set exit points on securities that have uncertain risks. Investors may also apply an exit point to a traded investment when developments are occurring that affect the price either positively or negatively.

One of the best examples of a trading strategy that integrates premeditated exit points at the time of initial investment is a bracketed buy order. A bracketed buy order is a conditional order that includes an exit point with a profit target and an exit point with a stop loss target. In a bracketed buy order an investor buys a security then sets a profit limit order at a specified price and a stop loss order at a specified price. The investor can vary the price of their stop loss order and profit limit order according to their risk tolerance. A bracketed buy order is a good way to manage risk on a security at the time of initial investment. It can be especially helpful if the investor is uncertain about the overall profitability of the security or if they wish to only hold the security over a short time period.

Once an investor owns a security they can also easily place conditional exit point orders at any time. Profit limit orders will help an investor to exit with a planned profit while stop loss orders will help an investor to set a specified value for losses. An investor following developments on their securities may see that a company has just announced news that is expected to significantly increase its value in the near-term. Given this news they may wish to set a profit limit order to take gains from this potential upswing in the price. Adversely, negative developments on a company might also be released that could cause losses to the stock price. To protect against this risk the investor could also add a conditional stop loss order to exit if the stock reaches a specified price.

There are many different strategies that can be used with integrated exit points. Most involve conditional orders which can be set as good until canceled to provide for a long-term exit strategy. Investors should also keep in mind that any exit from an investment involving capital gains will be taxed at either a short-term or long-term capital gains tax rate.

Business Exit Strategies

Businesses making large capital investments in private companies will also seek to manage exit points and exit strategies across their investments. Generally, an exit point and exit strategy is a part of all long-term business investment plans. For some investors the exit point may be an initial public offering. In other cases, an investor will set a profit target and maximum loss as part of their overall investing strategy.

RELATED TERMS
  1. Business Exit Strategy

    A business exit strategy is an entrepreneur's strategic plan ...
  2. Exit Strategy

    An exit strategy is the method by which a venture capitalist ...
  3. Profit Target

    A profit target is a predetermined point at which an investor ...
  4. Trading Strategy

    A set of objective rules designating the conditions that must ...
  5. Emotional Neutrality

    Emotional neutrality is the concept of removing greed, fear and ...
  6. Investment Strategy

    Investment strategy is what guides an investor's decisions based ...
Related Articles
  1. Trading

    Simple & Effective Exit Trading Strategies

    An effective exit strategy builds confidence, trade management skills and profitability.
  2. Trading

    FX Exit Strategies: Keeping Your Profits

    There are several useful methods for exiting a position, all which are easy to execute and can be implemented into a trading plan.
  3. Small Business

    Exit strategies: A key look

    Find out strategies for setting appropriate exit points when trading to help you avoid taking premature profits or running investment losses.
  4. Financial Advisor

    Advisors: Incorporating Impact Investing in Client Portfolios

    Impact investing can carry unique risks, but planning for them ahead of time can will help you incorporate these funds in client portfolios.
  5. Trading

    Day Trading for Beginners

    Interested in day trading but don't know where to start? Here are some common day trading strategies, as well as some day trading tips for beginners.
  6. Investing

    Equity Investing For The Buy-And-Holder

    The buy-and-hold investment strategy requires investors to disregard their emotional responses to market movements.
  7. Investing

    The Art Of Selling A Losing Position

    Knowing whether to sell or to hold is tough. And no rule fits all. Find out what to consider.
  8. Trading

    10 steps to building a winning trading plan

    It's impossible to avoid disaster without trading rules — make sure you know how to devise them for yourself.
  9. Insights

    How to Invest In Developing Markets

    Developing markets can be attractive additions to many investor's portfolios, but carry additional risks that must be considered.
  10. Investing

    Are Your Emotions Getting the Best of Your Investments?

    Behavioral finance studies the emotional side of investing and its effects on investor returns.
Hot Definitions
  1. Return On Equity - ROE

    The profitability returned in direct relation to shareholders' investments is called the return on equity.
  2. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  3. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  4. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  5. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  6. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
Trading Center