Take-Profit Order, T/P
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A take-profit order is an order placed by traders in the foreign exchange (forex) market to close a position when a specificprofit level is reached. Take-profit orders are placed when traders feel confident about a currency reaching a particularexchange value, beyond which an appreciation may be unlikely. The value specified for closing an open position is called the take-profit point. The difference between the take-profit point and the order opening price cannot go below a specific minimum level, which usually depends on the configuration of the broker server.
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Types of Take-Profit Orders
There are two types of take-profit orders:
Manual T/P orders: There are not closed automatically when the specified T/P point is reached and need human intervention. Thedisadvantage of this system is that there is a high probability of an order not getting closed at the right time due to circumstances such as technical difficulties or a miss at the trader’s end.
Automatic T/P orders: These orders are closed automatically by the trading system when the T/P point specified by a trader is reached. Since the automatic method is not impacted by the technical state of the metatrader (forex trading platform) server, itis commonly preferred to manual take-profit orders.
How is T/P different from Stop Loss?
While T/P involves closing a position at a specific value above the opening price, stop loss is the closing of an order at a position lower than the opening value. While a stop-loss order is made to limit losses, T/P orders are made to realize profits.
Advantages of Placing a Take-Profit Order
T/P orders are risk management tools that help to:
- Develop trading discipline.
- Realize profits and minimize losses.
Although T/P orders limit the profits one can realize from a position, it ensures a slow and steady flow of income. It alsooffers traders the convenience of not having to check the exchange rates constantly to close their orders.
Where to Place T/P Orders
Take-profit order accounts can be opened and accessed via the Internet or mobile phones by using the services of a broker. This provides flexibility to traders to participate in forex trading from anywhere in the world. A beginner can practice on a demo account, gain expertise and then start actual trading from a real account.
