Published : March 2, 2019
Bracket orders are the special type of intraday orders. They are designed to provide protection to the traders. Bracket orders allow the traders to place three orders simultaneously in one click. It is an advanced kind of intraday order that is accompanied by “take profit order”, “stop-loss order”. This helps the traders to automate their trades. It also helps in minimizing the risk involved.
Bracket Order has three orders embedded in it viz. limit order, take profit limit order and stop loss order. When a trader places a new buy/sell order with target/exit price and also a stop loss, all the three orders are placed together as a bracket order.
After the initial buy/sell limit order executes, the other two orders automatically initiate.
When any one of the profit limit order or stop loss order gets executed, the other order gets cancelled. It is because both the target profit order and the stop loss order are mutually exclusive events. Bracket order is an intraday order. It needs to be square-off before the market closes at 3:15 pm.
Following steps will help a trader to understand how to place bracket orders:
*1 tick=0.05 point for Nifty 50.
Therefore, 20 ticks are equal to 1 point for Nifty.
*If the trader chooses absolute, then he should mention the absolute points instead of ticks.
If the trader mentions 10 points, it is equal to 10 points for Nifty.
*Select 200 ticks or 10 absolute points respectively if stop loss target is at 10 Nifty points.
Yes, it is better to have a trailing stop loss order instead of fixed stop-loss order while placing bracket orders.
Trailing stop loss is an advanced stop loss order where stop-loss moves in tandem with the market if the market moves in favour of the traders. The trader can choose the ticks of trailing stop loss, i.e. by how much points the stop loss limit should change.
Consider the following example to understand how trailing stop loss works–
Following are the advantages of the bracket orders:
The disadvantages of the bracket orders are as follows:
In the following ways, bracket orders differ from cover orders –
Want more information on COVER ORDERS? Visit our blog –
The trader can exit from the bracket order only at the market price. If the trader wishes to exit the bracket order, he should reverse his position at the market price. The other two orders, i.e. the stop loss order and the exit order get cancelled automatically on exiting the bracket orders.
I am explaining with the help of two scenarios on how to modify bracket orders.
The trader can modify all the three orders of the bracket orders when the initial buy/sell order has not executed. The initial buy/sell order, the stop loss order and the target profit/exit order all the three can be modified.
When the limit price of the initial order has hit, and it is executed, it cannot be modified. The other two accompanying orders, i.e. the stop loss order and the exit order can still be modified.
Margin requirements for the bracket orders vary among different brokers. Bracket orders attract lower margins because of the stop-loss orders attached to them. Margin requirements are higher for high stop loss price and lower for a low stop-loss price.
Are you a trader? Trading in the equity market, commodities or currency futures in India? Here is your chance to learn about various types of MARKET ORDERS. Read our select blog on –
April 30, 2020 2:17 pm
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