Learn something new every day
More Info... by email
A flat trade is an investment that results in no gain or loss. It’s the financial world’s equivalent of the more common phrase “breaking even.” Although finance pros have multiple definitions for this term, they generally mean the same thing.
The common definition of a flat type of trade is when a trader sells an investment for the same amount that he/she bought it for, so that the transaction evens out completely. Lots of these flat trades are in what’s called a long position, where an investor buys a stock hoping for long term gain. If the investor gets impatient before that stock investment produces a gain, they may sell in a flat trade.
Another less frequent use for the term “flat trade” is in bond transactions. When a bond trades flat, it is sold without accrued interest, so that neither gain nor loss applies to the bond equity holder. A flat trade with a bond may be relevant to a bond default scenario or other situation.
Lots of finance experts would say that a flatly traded equity is not a good deal for the investor. Most financial products are expected to generate some gains. In a flat trade, there’s no positive growth that corresponds with the work that was done in buying and selling the stock or equity.
Commissions may also affect a flat type of trade. If the investment is traded flat without factoring in commissions, the investor will still owe these commissions to their brokerage or money manager. Lots of investors and traders try to avoid a flat trade scenario, but sometimes when they need their invested capital, a flat trade can be the best solution. One reason that someone may sell for a flat trade is when he or she needs the capital to put into a better investment. For example, this often occurs when a regular trader or investor wants to purchase real estate.
Finance pros note that flat trades are more common in different types of long positions or long term investments. Short term investments like short sales, put or call options, or other types of investing may still occasionally result in flat trades, but some of them are unlikely to produce a break-even scenario because they rest on immediate results. Investors can study their own strategies to see if a flat trading deal would ever make sense for them.