What is a Take-Profit Level?

While stop-loss levels exist to help limit your losses, take-profit levels are used to ensure your trading gains. A take-profit level is the price at which your trade will be closed, i.e. an expected profit. Take-profit levels are used as a means of securing an unrealized profit automatically, even if you’re not logged in to your account.

Where should I set my take profit level?

If you’re long a market, then you will benefit from an increase in its price. You should set your stop-loss at a price that is higher than your trade price.

If you’re shorting a market, that means you benefit from a decrease in it’s price. You should set the take profit level at a price lower than your trade price.

Execution Price

It’s important to understand that the price, at which your stop-loss or take-profit order is executed, can vary from the price that you have set. Markets move quickly, and while your stop order is triggered by the underlying market crossing the price threshold that you have set, by the time the order is created and placed (usually within a few seconds), the market might move, and your order will close at a different price.

Market Price Gaps

You may notice that sometimes markets jump in large increments. This can occur when there is increased market volatility, or if the market opens after a session break. If that happens, and the market moves over or under the price level that you have set, it will trigger the closure of your position at the current market price.

Spreads

You should stay mindful of spreads as they will affect the efficacy of using stop-loss and take-profit orders as a risk management tool. The price thresholds set on trades are linked to the market price, before any spread calculation. Therefore, make sure you set your price thresholds with spreads in mind.

Updated on: 24/03/2021