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What Does "Flat on a Failure" Mean?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 19 March 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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"Flat on a failure" is a term that is used to describe a situation in which an investment achieves a certain level of growth, but not quite the amount of growth that the owner originally anticipated. Rather than waiting longer for the security to actually reach the projected growth target, a decision is made to go ahead and sell at the current market price. This means that even though the asset did post some type of returns, it failed to provide the anticipated return and is sold in favor of a security that is more likely to achieve the desired level of return.

The general concept of flat on a failure can be applied in just about any type of investment situation. For example, trading currencies in a foreign exchange or forex setting is a type of investment activity in which this process of selling before a target level of return is reached may be very practical. In this scenario, the investor is able to craft a currency exchange involving two specific currencies, and the exchange does turn out to be in the favor of the investor. While there is a return generated, it is not as much as the investor projected. Assuming that there is evidence that the exchange will not generate greater returns if the investor holds onto the currency a little longer, he or she may decide to settle for the return that was actually generated, and move on to the next deal.

Flat on a failure can also be applied to the trading of stocks. In this scenario, the idea may be to secure an even lot of shares with a plan of holding onto those shares for six months, expected to generate a certain amount of profit during that time. If at the end of that six-month period, the shares have generated close to the anticipated amount but have failed to reach it, the investor is faced with the decision of holding onto the shares a little longer in order to generate the desired return, or to sell at the current market price. If all factors indicate the shares will remain somewhat flat for a time, the investor may decide to go forward with the sale and invest in some other security that shows more promise.

It is important to note that an investment that is sold flat on a failure is not necessarily a failure in the sense of leading to a loss. This situation simply means that the investment did not live up to the full potential originally envisioned by the investor. In many cases, the asset does generate profits for the owner that help to increase the overall value of the portfolio, although falling short of what the investor hoped to earn from the investment within a certain period of time. For this reason, flat on a failure should not be dismissed as a waste of effort, just one that failed to reach a targeted goal.

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