“Take-profit” or T/P order closes your trade when it reaches a predetermined monetary amount (profit) to exit the transaction. All the trader has to do is to place a take-profit order at an exchange rate higher than the purchase rate. Let’s try to define whether there is some key level that would make a logical take-profit point.
You can place the order at the beginning of the transaction. However, you can always change it during the exchange, move it or remove it. Of course, the only condition is that the order has not been already executed.
When does “take-profit” happen? It happens when the transaction is profitable, i.e. the changes in the exchange rate reflect increased profits. This type of order serves as a significant risk management technique.
Take-profit is sometimes referred to as limit order. Traders often use take-profit order along with stop-loss order. The concept is pretty much the same: to exit a trade when you have a respectable profit. It is preferable rather than waiting for the market to go against you and then exiting out of fear.
The difficult part is that no one is willing to exit when is in profit. In any case, if you do not exit right at that favorable moment it is almost certain that you’ll have to exit anyway at a later time. Probably, your exit will be accompanied with losses.
Take-profit: Why shall I use it?
- You are not interested in constantly following the transaction, or you are not able to.
- But, you are interested in getting out of the market at a predetermined profit.
- You want to limit the exposure to the market, thus limit your risk.
- Maybe you follow a short-term strategy.
- You are unsure when to exit.
- Simply, you don’t have to worry to manually execute this order.
- You know what to expect before the trade even takes place.
- It does not entail any payment of commission. Yes, it is free.
Sources: LQDFX, Investopedia, the balance
PLEASE NOTE The information above is not investment advice.