Getting Started Building a Trading Career Tools and Resources Glossary - Backtesting
- Backtesting Depth
- Bear Market
- Bull Market
- Candlestick
- Charting
- Chart Patterns
- Day Trading
- Dividend Yield
- ETF
- Fundamental Analysis
- Leverage
- Limit Order
- Index Fund
- Margin Trading
- Market Capitalization
- Mutual Fund
- Market Trends
- Moving Averages
- Price-to-Earnings Ratio (P/E Ratio)
- Portfolio Diversification
- Positions in Prosperse
- Risk Management
- Scalping
- Short Selling
- Stock Alerts
- Stock Scanning
- Stock Screener
- Stop-Loss Order
- Support and Resistance
- Swing Trading
- Take Profit
- Technical Analysis
- Trend Lines
- Volatility
Glossary - Take Profit
Take Profit definition
An order placed by a trader to automatically close a position when a specified profit target is reached.A take profit order is an instruction given to a broker to close a position when the price of a security reaches a specified level. This type of order is commonly used by traders to lock in profits once the security reaches a desired price. When the take profit level is reached, the order is executed automatically, helping the trader to secure gains without having to monitor the market continuously.
Use Cases
For example, if a trader buys a stock at $50 and sets a take profit order at $60, the order will automatically sell the stock when the price reaches $60. This allows the trader to lock in a $10 profit per share without needing to manually execute the sale. Take profit orders are often used in conjunction with stop-loss orders to manage both potential gains and risks in a trade.
Take profit orders are particularly useful in volatile markets where prices can move quickly. They provide a level of automation that can help ensure profits are captured at the desired price level.
Related Terms:
- Stop-Loss Order: An instruction given to a broker to buy or sell a security once it reaches a specified price, known as the stop price.
- Limit Order: An instruction to buy or sell a security at a specific price or better.
Frequently Asked Questions
What is a take profit order?
A take profit order is an instruction to close a position once the price of a security reaches a specified level, allowing the trader to lock in profits automatically. It's commonly used to secure gains without having to monitor the market constantly.
How does a take profit order work?
When a security reaches the take profit price, the order is triggered and executed at the best available price. This helps traders secure their profits without needing to be actively involved in the trade at the time.
When should I use a take profit order?
Take profit orders are useful when you want to lock in gains at a specific price level. They are particularly effective in volatile markets where prices can change rapidly, allowing you to capture profits before the market turns against your position.
Can I set a take profit order on any security?
Yes, take profit orders can be set on most types of securities, including stocks, bonds, and ETFs. It's important to check with your broker for specific rules and conditions regarding take profit orders on different assets.
How is a take profit order different from a stop-loss order?
A take profit order is used to lock in profits by selling a security when it reaches a desired price, while a stop-loss order is used to limit losses by selling a security when it drops to a certain price. Both orders can be used together to manage the risk and reward of a trade.
What are the risks of using a take profit order?
While take profit orders help secure profits, they can also lead to missed opportunities if the security's price continues to rise after the order is executed. Additionally, in highly volatile markets, the execution price might differ from the take profit level due to rapid price changes.
