What is a Take Profit Order in Trading?
A take profit is a pending order that automatically closes your position when the price reaches a specified target level, locking in your profit without manual exit.
How It Works
Take profit works as the mirror image of a stop loss. On a buy trade, the take profit sits above your entry price. When the market hits that level, the position closes and your profit is realized. Some traders use a single fixed take profit, while others scale out of positions at multiple levels. Trailing stops are a variation that moves the exit level upward as the price advances, letting profits run while still protecting gains. The ratio between your take profit distance and stop loss distance defines your risk-reward ratio. A 50-pip take profit with a 25-pip stop loss gives a 2:1 risk-reward.
Why It Matters
Without a take profit plan, greed and hope tend to take over. Traders hold winning positions too long, watching profits evaporate. A predefined exit replaces emotional reactions with a commitment made when the mind was clear.
Common Mistake
Having no exit plan at all, then closing trades emotionally, either too early from fear or too late from greed. Both patterns erode edge over a series of trades, even when the entries were good.
Example
You buy GBP/USD at 1.2700 with a stop loss at 1.2675 (25 pips) and a take profit at 1.2750 (50 pips). If the price hits 1.2750, you automatically pocket the 50-pip gain for a 2:1 risk-reward.
Stoic Insight
Seneca observed that greed and fear are two sides of the same coin. Both distort judgment. A predefined exit removes both from the equation. Decide what outcome you'll accept before the outcome is in motion.
Related Terms
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