What Is Take Profit In 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!
What are the benefits of Take Profit?
By setting a Take Profit Order (T/P) on your trade you can:
- Ensure a profit: If your order is successful, you’re guaranteed to make money on the trade.
- Minimise risk: By exiting the trade as soon as it hits the target price, you can take advantage of quick rises while limiting your exposure to the market.
- Avoid second-guessing: Because the trade happens automatically, you don't have to make a hasty buy/sell decision ‘in the moment’.
When should I use a Take Profit Order?
Take Profit is best used with a short-term strategy: . You can get out of the market as soon as you hit your profit target, without letting your gains slip away in a later downturn. Take Profit can also pay off when you’re trading against the trend, as prevailing trends tend to continue over time.
Can I change a Take Profit Order?
You can adjust or cancel a Take Profit while your forex trade is open and you’re monitoring the market. You can also add a Take Profit to a forex position that’s already open.
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Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.
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