Help CenterA 'take-profit' order, also referred to as a 'limit closing order,' is a specific type of limit order where you establish a precise price. Your trading provider will use this designated price to close your open position and secure a profit. If the limit order fails to reach the specified price, it remains inactive.
Many traders employ take-profit orders in conjunction with stop-loss orders to effectively manage the risk associated with their open positions. When you go long on an asset and it reaches the take-profit point, the order is automatically triggered, leading to the closure of the position with a profit. Conversely, if the asset experiences a decline, the stop-loss order is activated to minimize losses, aligned with your predetermined risk tolerance.
As a result, the disparity between the asset's market price and your take-profit and stop-loss orders establishes the maximum risk–reward trade-off for the trade.
Consider a scenario where a trader initiates a long position on an asset, anticipating a 20% increase. In such a case, they might place a take-profit order set at 20% above the purchase price and a stop-loss order positioned 5% below the acquisition price. This configuration results in a favorable 5:20 risk-to-reward ratio, assuming equal or tilted odds toward a positive outcome.¹