Definition
Take-ProfitA take-profit is a limit order that closes a trade automatically once price reaches a preset target, locking in the gain without needing to watch the screen.
Example
A trader sells GBP/USD at 1.2700 with a take-profit at 1.2610. If the ask falls to 1.2610, the order closes the short for a 90-pip gain.
In detail
A take-profit (TP) is the counterpart to a stop-loss. Instead of capping a loss, it secures a planned profit. Because it is a limit-type order, it fills at your price or better, so it is not subject to negative slippage the way a stop is. If price gaps through the level, you may even receive a slightly better fill, depending on broker policy.
- For a long trade, the TP sits above entry and is triggered by the bid.
- For a short trade, the TP sits below entry and is triggered by the ask.
Choosing a target
Good targets are tied to what the chart or your plan suggests, not to a round number of pips. Common methods:
- Just before the next resistance (for longs) or support (for shorts)
- A fixed risk-to-reward multiple, such as twice the stop distance
- A measured move from a chart pattern
- Partial exits: closing part of the position at a first target and leaving the rest to run
Example
Assume (illustratively) a trader buys 0.4 lots of EUR/USD at 1.0820 with a stop at 1.0795 and a take-profit at 1.0895.
- Risk: 25 pips × $4 = $100
- Reward: 75 pips × $4 = $300
- Risk-to-reward: 1:3
With a 1:3 ratio, the trader would break even (before costs) winning just one trade in four: one win of $300 offsets three losses of $100.
Trade-offs
A TP removes the temptation to exit too early out of nervousness, and it works while you sleep. But it also caps upside. If the market runs 200 pips past your target, the extra move is missed. Some traders use a trailing stop instead of a fixed TP in strong trends.
Why it matters
Setting both a stop and a target before entry forces you to define the trade's risk and reward in advance, which is central to consistent decision-making. See the What Is a Take-Profit lesson and the Risk-Reward Calculator.
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Related terms
- Stop-LossA stop-loss is an order that closes a trade automatically at a preset price to cap the loss if the market moves against you.
- ResistanceResistance is a price level or zone where a rising market has repeatedly stalled because selling pressure has tended to outweigh buying pressure there.
- SupportSupport is a price level or zone where a falling market has repeatedly stopped and bounced, because buying interest has tended to appear there.
- Risk ManagementRisk management is the set of rules a trader uses to limit losses, such as capping risk per trade, using stop-losses and controlling total exposure.