Take Profit
Definition
A take-profit order is an instruction to close a trade automatically when a specified favourable price level is reached. Its purpose is to lock in gains without requiring manual intervention. While take-profit orders help enforce discipline, the actual outcome depends on execution quality, liquidity, and how the broker handles order fills.
In Plain English
In plain terms, a take-profit order tells the broker: ‘Close this trade for me once the price reaches this level of profit.’ It allows traders to define their exit in advance, removing emotion from decision-making and ensuring profits are realised if the market reaches the target.
How It Works
- You open a trade and decide where you would be satisfied to exit with a profit.
- You place a take-profit order at that price level.
- The take-profit order remains inactive until the market reaches the specified price.
- When the price reaches the take-profit level, the order is triggered.
- Once triggered, it becomes a market order (unless otherwise specified by the broker).
- The trade is closed at the next available price.
- Execution price may differ slightly from the take-profit level due to liquidity and slippage.
- The final result is recorded in the trade history.
Why This Matters for Traders
Take-profit orders help traders implement structured exits and align trades with predefined risk–reward plans. They are particularly useful for traders who cannot monitor markets continuously. However, unrealistic profit targets or poor execution can result in missed exits or less favourable fills, reducing the effectiveness of the strategy.
Common Misunderstandings
- Take-profit orders guarantee the exit price: execution depends on market conditions.
- Profit targets should always be far away: unrealistic targets reduce the chance of execution.
- Take-profit orders remove all execution risk: slippage and partial fills can still occur.
- All brokers execute take-profit orders identically: execution rules and transparency differ.
- Take-profit orders eliminate the need for monitoring: volatile markets can still change outcomes.
How This Affects Broker Choice
Take-profit behaviour is closely tied to execution quality and liquidity access. When comparing brokers, users should consider:
• How reliably take-profit orders are executed at or near the specified price.
• Frequency of slippage on profit targets.
• Whether partial fills are possible on large positions.
• Transparency in showing requested vs executed prices.
• Consistency of order handling across platforms.
From a monetisation and comparison perspective, take-profit execution quality helps differentiate brokers with similar headline pricing but very different real-world outcomes.
Risks & Common Mistakes
• Setting take-profit levels without considering volatility or liquidity.
• Placing targets too close, reducing reward relative to risk.
• Ignoring how spreads affect effective profit levels.
• Assuming take-profit orders will always fill in fast markets.
• Choosing brokers with opaque execution reporting.
Risk note: take-profit orders do not guarantee profits and can execute at worse prices during fast or illiquid market conditions, particularly when leverage is used.
Real-World Example
You buy a CFD at £100 and set a take-profit order at £110.
• During a steady market, the price rises and the trade closes near £110.
• During a fast-moving market, the price jumps from £109 to £108 after briefly touching £110.
The order triggers but executes at £108 due to liquidity and slippage. The trade is profitable, but the realised gain is smaller than planned.
What to Check Before Trading
- How does the broker execute take-profit orders?
- Are execution prices clearly shown in trade history?
- How often does slippage occur on profit targets?
- Can take-profit orders be modified easily after trade entry?
- Are partial fills possible, and how are they handled?
- How do spreads affect effective profit levels?
- Is execution behaviour consistent during volatile periods?
Related Concepts
Stop-loss orders define downside risk, while take-profit orders define upside targets.
Take-profit placement determines the reward side of the ratio.
Execution quality affects how accurately take-profit orders are filled.
Slippage can reduce realised profit when take-profit orders trigger.
Volatility influences how often profit targets are reached or skipped.
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