How it works
The trader specifies a target price above the entry for longs (below entry for shorts). When traded price touches the target, the take-profit converts to a market or limit order and exits. Most platforms allow combining a take-profit with a stop-loss in a single bracket order, so the trader knows exact maximum loss and target profit before entry. The take-profit is purely a closing instruction; it does not affect any other position.
Example
A trader buys EUR/USD at 1.0800 with a 50-pip stop at 1.0750 and a 100-pip take-profit at 1.0900. Risk is $500 on a standard lot, target $1,000, a 2:1 reward-to-risk ratio. If EUR/USD reaches 1.0900, the take-profit fires and the position closes with $1,000 profit. If EUR/USD reaches 1.0750 first, the stop-loss fires and the position closes with $500 loss. Either way, the trader’s outcome was pre-defined before opening.
Why it matters
Take-profit orders remove the most expensive decision in trading: when to exit a winner. Without one, traders often hold past the target hoping for more, watch price reverse, and exit at break-even or loss. Discipline by automation. Set the take-profit using the same framework as stop-loss: defined by structure (next resistance, prior swing) or by a fixed multiple of risk (2R, 3R), not by hope. Adjust only based on new objective information, never because of emotion.
