Break even Probability
Break even probability is the minimum probability estimate required to offset costs under a simplified model.
Definition
Break even probability is the minimum predicted probability you need to justify a reference market price once costs are included. It is a cost adjusted threshold, not a forecast.
What drives break even
• Higher fees raise break even.
• Wider bid ask spread increases execution cost.
• Lower liquidity increases slippage.
Why it matters
In bounded price markets, costs can dominate small edges. Break even helps you see when a trade is sensitive to friction.
Common pitfalls
Assuming one fee model: Platforms charge fees differently. Treat this as a simplified baseline.
Using mid blindly: If you pay ask, your break even threshold is higher.