What Is Take Profit And How To Use It?

One of the best ways by which traders minimize their losses and maximize their profits is by using a take profit.

Everyone knows that trading in the forex market involves a very high level of risk.

Many traders make use of different market orders to minimize this risk and maximize their profit.

The orders are of two main types.

They are the market order and the pending order.

Some of these orders include the stop-loss order, the take profit order, the limit order, and so on.

What Is A Take Profit?

It is an order that traders use to claim profits.

This is an order that traders use to specify the price at which they want to close a trade for a profit.

Once the price reaches the specified price, a broker closes a trade automatically and the profit is added to a trading balance.

The stop-loss order helps to close a trade in order to minimize a loss after the market price reaches a specified point.

A T/P, as many traders call it, helps to claim a profit once the market price reaches a point.

The T/P order is one of the risk management measures that traders take in the forex market.

This order is the type of order that many traders use when they want to multitask.

Once they set this order, they can go on with other daily activities while the market price is making its move.

How To Use The Take Profit Order.

Before a trader places a trade, he must have analyzed the market very well.

This is why the technical analysis in the forex market is very important.

After his analysis, he is expected to place his trade.

While placing his trade, he needs to make use of certain forex orders to minimize the risk of losing such a trade.

One of the orders that many traders use in such scenarios is a T/P order.

Here are a few examples of how to use the order.

Mr. Sam, an experienced forex trader, wants to place a go long on the EURUSD currency pair.

Before he placed his trade, the market price was at 1.50000, then, he set a T/P at 50 pips, what does this mean?

This means that Mr. John is trying to claim his profit at the 50 pips point.

The 50 pips point is at 1.50050(Kindly check our article on pips calculation if you would love to know more about it).

Once the market price gets to 1.50050, his trade will close automatically.

Then, his broker will add his profit to his trading balance.

Let us take another example.

Sam is an amateur trade who went short on the GBP/USD currency pair. He set his take-profit at 100 pips.

The market price was at 1.25250 before he placed the trade. What does this mean?

This means that once the market hits the 100 pips point, his trade will close automatically.

Then, his broker will add his profit to his trading balance.

Remember that the 100 pips point is at 1.25150 since it is a sell order.

However, do not assume that a trader will lose the same number of pips he sets as his take profit if a trade goes against his analysis.

Frequently Asked Questions(FAQs).

Summary – What is Take Profit

A take-profit order that a trader gives to a broker to close his trade once the price hits his specified point.

After the broker closes the trade, the broker adds the profit to the trading balance of the trader.

The T/P order is one of the orders that traders use to maximize their chances of making a profit.

Also, using a T/P order is one of the risk management practices.

However, the best way to minimize the risk of losing trade is by using a stop-loss and a T/L together.

It is possible for traders to have made a profit to some point and they end up losing such a trade.

This happens during retracements or reversals.

The best way to avoid such a scenario is by claiming a profit before the loss starts to set in.

This is why many forex traders would advise beginners not to be greedy while trading.

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