Key takeaways
- A take-profit is a limit order that closes a trade automatically when the price reaches a set target.
- On a long trade the take-profit sits above the entry and is triggered by the bid; on a short it sits below and is triggered by the ask.
- Comparing the take-profit distance with the stop-loss distance gives the trade's risk-reward ratio.
- A higher reward-to-risk ratio lowers the win rate needed to break even, but a distant target is also less likely to be reached.
Contents
Knowing when to take a profit is as important as knowing when to cut a loss. A take-profit order closes a winning trade automatically at a level you choose in advance. It helps you plan trades, avoid second-guessing, and judge whether a trade is worth taking at all.
What a take-profit is
A take-profit is a limit order attached to an open position. When the price reaches your target, the trade is closed and the profit is locked in.
- On a buy (long) trade, the take-profit is above the entry price and is triggered by the bid.
- On a sell (short) trade, the take-profit is below the entry price and is triggered by the ask.
Because a take-profit is a limit order, it normally fills at your price or better. In fast markets execution can vary, so check your broker's order policy.
Why use a take-profit?
- Discipline. It stops you from holding a winning trade until it turns into a losing one.
- Planning. Setting a target before entry forces you to think about how far the price could realistically move.
- Time. The order works while you are away from the screen, including across sessions.
A take-profit is usually set alongside a stop-loss, covered in What is a stop-loss?. Together they define the trade's possible outcomes.
Take-profit and risk-reward
The distances from your entry to the stop-loss and to the take-profit give the trade's risk-reward ratio:
Risk-reward ratio = distance to stop-loss : distance to take-profit
If you risk 30 pips to target 60 pips, the ratio is 1:2. The ratio helps you work out how often you need to be right to break even, ignoring costs:
Break-even win rate = 1 ÷ (1 + reward-to-risk)
| Risk-reward | Reward-to-risk | Break-even win rate |
|---|---|---|
| 1:1 | 1 | 50.0% |
| 1:1.5 | 1.5 | 40.0% |
| 1:2 | 2 | 33.3% |
| 1:3 | 3 | 25.0% |
Spreads and commissions push these break-even rates slightly higher. The intermediate lesson Risk-reward ratio goes deeper, and the Risk/Reward Calculator runs the numbers.
Worked example: setting stop and target together
Assume GBP/USD is quoted at 1.2700 (illustrative). You plan a long trade of 0.1 lots, so each pip is worth $1.
- Entry: buy at 1.2700
- Stop-loss: 1.2670, which is 30 pips below
- Take-profit: 1.2760, which is 60 pips above
- Money at risk: 30 × $1 = $30
- Potential profit: 60 × $1 = $60
- Risk-reward: 1:2
If the take-profit is hit, you make $60 before costs. If the stop-loss is hit, you lose $30 plus costs and any slippage. Over a series of such trades, winning about one in three would roughly break even before costs. That is not a promise of any result; it only shows what the numbers imply.
How to choose a target
A useful take-profit reflects where the market might reasonably reach, not a sum of money you would like to earn. Common approaches:
- Before a technical level. For a long trade, just below a nearby resistance zone, where selling has appeared before.
- Based on typical range. A target that fits the pair's normal daily or session movement.
- As a multiple of risk. For example, a target at twice the stop distance, then checking that the level makes sense on the chart.
- Partial exits. Some traders close part of a position at a first target and manage the rest with a trailing stop.
Remember the spread: a long take-profit needs the bid to reach your level, so the ask must trade a little above it.
Common mistakes
- Setting targets from a money goal. The market does not know how much you want to make.
- Placing targets just beyond obvious levels. Price often stalls before them.
- Chasing a high ratio with an unrealistic target. A 1:5 trade that rarely reaches its target may perform worse than a 1:1.5 trade that often does.
- Removing the take-profit in hope of more. This can turn a planned win into a loss.
Summary
A take-profit is a limit order that closes a winning trade at a pre-set target: above the entry for longs and below it for shorts. Combined with a stop-loss, it defines the trade's risk-reward ratio and the win rate needed to break even. Choose targets from market structure and typical movement, account for the spread, and remember that no target or ratio guarantees a profitable outcome.
Glossary terms in this lesson
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Practice worksheet
Practice worksheet
5 exercises to try on paper. Print it, save it as a PDF from the print dialog, or download a plain-text copy.
- You buy AUD/USD at 0.6600 with a stop at 0.6575 and a take-profit at 0.6650. Calculate the risk and reward in pips and the ratio.
- For the same trade at 0.2 lots, calculate the dollar amount at risk and the dollar target.
- Calculate the break-even win rate, ignoring costs, for risk-reward ratios of 1:1, 1:1.5 and 1:3.
- Explain why a long trade's take-profit might not be filled even though the ask touched the target price.
- Describe two ways to choose a take-profit level that are based on the chart rather than on a money goal.
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