Trading forex can be a cruel and challenging process that requires constant attention to the market. Because of this, there are constant developments of tools to improve this process, and the Take Profit order is one of these tools.
Take Profit Order definition
Take Profit is a type of limit order that indicates a trading platform to close out a certain open position when the market reaches a certain price, in order to take profit. Price should be exact, and if the price fails to reach that mark take profit order will not be executed.
Why is Take Profit important for traders?
- Take Profit order guarantees profit if the order gets executed.
- Take Profit lowers the potential risks associated with forex trading.
- Thanks to Take Profit orders, traders don’t have to look at the market every time.
- With the help of Take Profit orders, traders don’t have to second guess themselves.
Thorough Take Profit definition
Take Profit order in forex trading is one of the best risk management tools, in combination with a Stop Loss order. Whenever a trader indicates their take profit order price and the market reaches that price, the order will automatically get executed, netting a trader profit.
A Take Profit order can be a double edge sword. With the help of Take Profit traders don’t need to always keep an eye on the market and close out positions manually. But it can also make traders lose out on bigger profits. When setting a take-profit order, traders use different indicators and charts to determine where to set this order. But if prices keep growing after reaching the take profit mark, traders will be missing out on bigger profits.
Example of Take Profit
To better understand Take Profit order in forex let us look at one example. Let’s say that the trader opened a market position on GBP/JPY at the price of 160.400. After looking at different charts and indicators, the trader makes a conclusion that after reaching the 160.500 mark, prices are likely to fall again. So the trader makes a Take Profit order at 160.490, leaving some room for further safety. Once the market reaches the price mark of 160.490 the Take Profit order will automatically get executed, leaving the trader with 0.090 profit. But if the price were to reach 160.489, the Take Profit order will not be executed and profits will not be taken automatically.
FAQs on Take Profit orders
Should traders use a take-profit order?
Take profit order is one of the most important limit orders in forex trading. This is a great risk management tool that removes emotional decisions and second-guessing from traders. This limit order is used in combination with stop loss and other indicators.
What should my take-profit be?
The general suggestion is to have a ratio of 1:3. Your profits should be three times higher than your losses. So if you set the stop-loss order to be executed when the loss reaches 5 pips, the take-profit order should generate 15 pips profit.