Definition
A take-profit is an order that closes all or part of a position automatically when the price reaches a target level, securing a gain without the need to watch the market.
How it works
For a long position, the take-profit is placed above the entry; for a short, below it. It is usually a limit order, so it fills only at the target price or better. Many platforms let you attach a take-profit and a stop-loss to the same position so that when one fills, the other is cancelled; this pairing is often called a one-cancels-the-other (OCO) order.
The target defines the reward side of a trade. Together with the stop-loss, it sets the risk–reward ratio: for a long, reward = target − entry and risk = entry − stop. A distant target improves the ratio on paper but is reached less often, so the ratio only means something next to a realistic chance of reaching the target.
Traders often split exits with a partial take-profit: closing part of the position at a first target and the rest at a second target or with a trailing stop. This gives up some potential gain in exchange for securing part of it earlier. Because a limit order must be matched, a price that only touches the target briefly can leave the order unfilled or partly filled.
Example (hypothetical numbers)
Suppose you buy 50 Coin A at $40, with a stop-loss at $37 and a take-profit limit order at $49.
Risk per coin = $40 − $37 = $3; reward per coin = $49 − $40 = $9, a risk–reward ratio of 1:3.
If the take-profit fills, profit = 50 × $9 = $450 before fees, against a planned maximum loss of 50 × $3 = $150.
A partial plan that sells 25 coins at $46 and 25 at $49 earns 25 × $6 + 25 × $9 = $150 + $225 = $375 if both orders fill.
The example shows how the target sets the reward, and how a partial take-profit gives up some upside to lock in part of the gain earlier.
Common mistakes
- Setting a target so far away that the price rarely reaches it.
- Expecting a take-profit limit order to fill when the price only touches the target briefly.
- Cancelling the take-profit during a rally and then giving back the whole gain.
Related calculators
This glossary is for education only and is not investment advice. Examples use hypothetical numbers.