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Take-Profit Order

A take-profit order is a type of limit order that automatically closes a trade when the price reaches a predetermined profit target. It allows traders to lock in gains by exiting a position at a favorable price level without needing to actively monitor the market. Take-profit orders are commonly used in conjunction with stop-loss orders to manage risk and reward in a trade.

Example

A trader buys a stock at $100 and sets a take-profit order at $110. If the stock price reaches $110, the position is automatically sold, locking in the profit.

Key points

• An order to sell a security when a specific profit target is reached.

• Used to lock in gains and manage risk in a trade.

• Commonly combined with stop-loss orders for balanced risk management.

Quick Answers to Curious Questions

Take-profit orders allow traders to automatically lock in profits when a security reaches a specified price, eliminating the need to constantly monitor the market.

A take-profit order exits a trade at a profit target, while a stop-loss order closes a position to limit losses when the price falls to a certain level.

In volatile markets, prices can fluctuate quickly, and the trade may close too early, preventing further gains if the price continues to rise.