What is Take Profit order in Forex Trading?
One of the most important pre-calculated price levels used by traders today is called Take Profit. This is a type of pending order that is placed to close a profitable position once the market reaches a specific price. As the name suggests, it allows the trader to set a predefined level to lock in any profits. In other words, it takes the profit as it closes the position. Take Profit is abbreviated as (T/P). For example, a trader goes long (in other words, enters a buy position) by entering the market at 1.2980, expecting prices to rally higher. He wants to benefit from the rise, so he places a Take Profit order at a level higher than the entry price, say 1.3180. If the Bid price hits the predefined Take Profit price at 1.3180, the position is closed and profits are locked in.
Similarly, if a trader goes short (enters a sell position), expecting prices to fall, he places a Take Profit order at a lower level than the entry price because he wants to benefit from the fall. Let’s say this trader entered the market at the same price, 1.2980. In this case, he decides to place his Take Profit at 1.2880. If the Ask price hits that predefined Take Profit price, the position is closed and any profit is locked in.
Take Profit (and/or Stop Loss) orders may be placed on Instant Execution accounts simultaneously when entering the market. On Market Execution accounts, you can specify a Take Profit or Stop Loss order when placing a pending order to enter the market.
Next up is Stop Loss, an equally important pre-calculated price level used by a majority of traders today. Stay tuned!
