Take Profit
In financial trading, a “take profit” (TP) is an order made by the trader via their broker platform.
More specifically, this order identifies the amount of profit at which a trader wants their current position to exit at, should the instrument happen to reach that level.
The take profit is pre-determined either by setting the number of points or by setting the price at which the trade will automatically exit for a profit.
A take profit order is should or is usually placed at the start of a trade, just after a trader has entered the market.
Naturally, a take profit level can be above or below the entry price, depending on whether the trader is long or short.
Using Take Profit Orders in Forex
For example, in currency trading, let’s assume that the EUR/USD is trading at 1.1200. If a trader anticipates the euro will gain strength against the dollar, they may buy EUR/USD.
In such a scenario, the take profit target would be placed above 1.1220. How much above the entry price is up to the trader, which they will determine by the use of technical and/or fundamental analysis.
If the trader feels the price should comfortably reach 1.1260, but are not convinced it will rise beyond that, they can place a TP of 40 pips on their forex broker platform.
Once this TP is set, (known as a buy take profit order) if the price does reach 1.1260, it will automatically close out for a profit.
Of note, the trader does not need to intervene, thereby freeing up time, especially since most individuals are unable or do not desire to keep a constant eye on the market.
Likewise, if the trader held that the price would be going down, they could set a sell take profit order, which would be placed at a certain level below the entry price.
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