What Is Take Profit?

A take profit order is placed above the entry price in a long position and below it in a short position. When the price reaches this level, the order is triggered and the position is closed as a market order or a limit order, depending on the exchange's settings. Most cryptocurrency exchanges allow take profit and stop-loss orders to be set at the same time; this pair defines the potential profit and loss limits of the trade from the start.

For example, if an investor who buys a token at $100 places a take profit order at $120 and a stop-loss order at $90, the position closes at whichever level is reached first. This approach reduces emotional decision-making and makes it easier to calculate the trade's risk-reward ratio in advance.

The order also has limits. In fast price movements, a position closed with a market order can be executed at a price different from the target because of slippage. A take profit set up as a limit order may not be executed at all if the price briefly touches the level and then reverses. Placing the target too close to the entry can also cut potential profit short.