A take profit order is the limit placed on a trade, clearly specifying the exact rate form the entry point. Placing a take profit order ensures that the trader can lock his profit and close the trade.
The main reason why take profit order is placed by traders is because they do not know how far prop firm
the market will go. No trader can expect or is always completely right about his forecast of the market. Therefore, they use the charts at their disposal to understand the resistance levels. If they find that a trade is showing resistance at a particular level, they will place a take profit order at that point so that they can exit with the profits earned.
Take profit order is opposite to a stop loss order. In a stop loss order, you place a limit on the loss and exit. But in a take profit order, you place a cap on the profit and exit when you are ahead.
This is where understanding how to read charts comes into use. When you check the charts and find that the trend of the market is long term, there is no use of a take profit order, as the trend is likely to continue. The trader can continue to earn profits by going with the trend. However, when the market is going against you, or against the trend, it is essential to place a take profit order. The trend will prevail and it is better to take your profits after reaching a certain expected level and exiting.
For example, when you buying yen worth $100 at a price of 107 yen per dollar, and place a take profit order at 108, the currency will be automatically closed when the price reaches 108. Therefore, your initial investment was 107,00 and sale was at 10800. You make a profit of 100 yen.
Take profit orders are of two types as given below.
Manual take profit orders – In this type of order, you need discipline to close the trade when it reaches the expected value. Procrastinating can lead to losses and on the other hand, the price may also rise up higher. The trade is closed manually.
Automatic Take profit order – In this type of order, a cap is place and the trade is closed automatically, when it reaches the pre-specified point.
It is true that placing a take profit order limits the profits on the trade but it is equally true that it protects the trader against a sudden reversal of the market. Unlike stop loss orders, they should be used occasionally when quick profits are needed and exit the market.
Shopping for a broker offering the lowest spread
When you start prop firm Trading, you will find that all brokers attract traders with their offer of lowest spread. If you compare spreads, you will be surprised to find different spreads. If the price of a currency is the same everywhere, why does the spread differ between different brokers? This is something that beginners have to understand.
The spreads vary from one broker to another. This should be a major factor to be considered when you are shopping for a broker. Traders will find that many brokers will not take a commission or ask for it outright, even though they are providing you with their services. But the services are not free. Their fee is taken from the spread and that is why you should shop for a broker with lowest spread.
A spread is the difference between the bid and ask price of the currency. A broker adds this difference to the cost of your trade and retains it as his fee. So when you are told that he is not charging a commission for his services, you can be assured that the commission will be there but it will not be visible to you.
Currencies like EUR/USD, GBP/USD et al have the lowest spread and the currencies that are not very traded very frequently have a higher spread. When you are shopping for a broker offering the lowest spread, check the account for which it is being offered. Sometimes, different spreads are offered for different types of accounts. For example, for a good mini trading, the broker may have higher spreads.
When the spread on the currency pair is small, it is better for the trader. But some traders, especially day traders and scalpers, do not care too much about the spread. For them, each pip counts, as the size of the spread makes the profit. If you have a broker offering a 4 pip spread as compared to a broker offering a 3 pip spread, then the difference of 1 pip can make a dent in your pocket.
Therefore, when you are shopping for a broker, check the spreads. In case a trader offers you benefits like zero commission or cash back opportunities, then you must beware. The broker will find some way to claim his fee one way or the other.
