Take Profit (TP)

Take Profit (TP) is one of the most important pre-calculated price levels used by modern traders. It functions as a type of pending order designed to automatically close an open position once the market reaches a specified price level.

As the name suggests, the primary intent of a Take Profit order is to lock in any profits incurred from a successful trade. In simple terms, it "takes the profit."

How Take Profit Works

The mechanism for setting and executing a TP order depends on the trader's market position (Buy or Sell).

  • For a Buy Position:
    • A trader enters a buy position expecting prices to rally higher.
    • The TP order is placed at a price higher than the entry price.
    • If the bid price hits the predefined TP price, the position is automatically closed and profits are locked in.
  • For a Sell (Short) Position:
    • A trader enters a sell short position expecting prices to fall.
    • The TP order is placed at a price lower than the entry price.
    • If the ask price hits the predefined TP price, the position is automatically closed and profits are locked in.

Placing TP Orders

The timing for placing Take Profit (and/or Stop Loss) orders varies depending on the type of trading account used:

  1. Instant Execution Accounts: TP (and Stop Loss) orders may be placed simultaneously when the trader initially enters the market.
  2. Market Execution Accounts: TP (and Stop Loss) orders are typically specified when placing a pending order to enter the market.

Detailed Summary

A Take Profit (TP) order is a crucial pre-calculated price level used by traders as a pending order to automatically close an open market position when the specified price level is reached, thereby locking in accumulated profits. The mechanism depends on the position type: for a Buy position, TP is set higher than the entry price and executes when the bid price hits it; for a Sell (Short) position, TP is set lower than the entry price and executes when the ask price hits it. The timing of placing TP orders varies based on the trading account type, allowing simultaneous placement upon entry in Instant Execution accounts, or placement alongside the pending order in Market Execution accounts.

Key Takeaways

  • Take Profit (TP) is a pre-calculated price level functioning as a pending order.
  • Its purpose is to automatically close a profitable position to lock in gains.
  • For a Buy Position: TP is set higher than the entry price and triggers upon reaching the bid price.
  • For a Sell (Short) Position: TP is set lower than the entry price and triggers upon reaching the ask price.
  • In Instant Execution Accounts, TP orders can be placed simultaneously with the initial market entry.
  • In Market Execution Accounts, TP orders are usually specified when placing a pending order to enter the market.