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What is profit taking?

Profit taking

This is a way that a company can turn paper profits into actual profits or cash by selling a security after its price has risen.

Where have you heard of profit taking?

This term can be used when talking about any security, including mutual funds and exchange-traded funds. But it's most often used in relation to stocks and equity indices.

What you need to know about profit taking.

If you're an investor, profit taking allows you to convert the increase in the market value of an asset into cash. If a lot of investors do this at the same time, it can cause the price of the asset to fall. But profit taking itself indicates that the asset is experiencing an upward market trend. There's sometimes a specific catalyst for profit taking, but often it occurs just because a price has risen a lot over a short period of time. However, losses can also occur.

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