Direct answer
Exit rules are the predefined conditions that tell you when to close a forex position (for example, at a target price, at a loss limit, or when a time condition is met). A worked example lays out every assumption—entry price, exit prices, position size, and costs—so you can calculate the result and also see where real outcomes may differ.
Mechanism or definition
A typical exit rules setup includes at least one price-based rule and may include a time-based or event-based rule. Price-based rules are usually expressed as:
- Stop-loss (SL): a price level intended to limit losses if price moves against you.
- Take-profit (TP): a price level intended to lock in a gain if price moves in your favor.
To turn those into a numeric outcome, you need inputs. Common inputs in calculations are:
- Entry price (the price at which the position is opened).
- Exit price (the price used by the rule, such as SL or TP).
- Position size (often described as units of the base currency).
- Direction (long or short).
- Costs (at minimum, an assumed spread and/or commission per unit).
Evidence or example
Below is a worked scenario that shows how exit rules can be translated into a result. No live market data is used; everything is assumed.
Assumptions
- Instrument: a forex pair where you quote prices as quote currency per 1 unit of base currency.
- Direction: long.
- Entry price: 1.1000.
- Stop-loss level (SL): 1.0950.
- Take-profit level (TP): 1.1100.
- Position size: 10,000 units of base currency.
- Costs: assume a flat 0.0001 (one tick) effective cost from spread/fees per unit in the direction against you.
- Order execution: assume you are filled exactly at SL/TP without slippage.
Case A: SL is hit first
- Price move from entry to SL: 1.1000 − 1.0950 = 0.0050.
- Gross loss in quote-currency terms per unit: 0.0050.
- Gross loss for 10,000 units: 0.0050 × 10,000 = 50 (quote currency).
- Add the assumed cost: 0.0001 × 10,000 = 1.
- Net result (assumed): −51.
Case B: TP is hit first
- Price move from entry to TP: 1.1100 − 1.1000 = 0.0100.
- Gross gain for 10,000 units: 0.0100 × 10,000 = 100.
- Add the assumed cost: 1.
- Net result (assumed): +99.
How this is an “exit rules” worked example In both cases, the exit rule determines the exit price. The calculation is mechanical: apply the assumed entry and exit levels, then apply the assumed costs and position size.
Limitations and risks
Even when the exit rules are clearly written, several limitations can change outcomes:
- Execution differences: real fills may occur at a worse price than the SL/TP level due to delays or slippage. In the example, slippage was assumed to be zero.
- Uncertain order ordering: the market may reach both levels, but not in the order you expect. The worked example assumes SL-first or TP-first as separate scenarios.
- Cost uncertainty: spread and commissions vary over time and liquidity conditions; the example used a single fixed cost.
- Model sensitivity: small changes to entry, exit, or position size change the result linearly in this simplified calculation.
Because of these uncertainties, the numeric results here are not predictions—only illustrations based on stated assumptions.
Verification or next question
To verify exit-rule understanding independently, reproduce the same math with your own assumptions: pick an entry price, choose SL/TP levels, set a position size, and apply any stated costs. A useful next question is which part of your exit rules you can control most (rules logic) versus which part you cannot (execution quality and market movement order).