1. What are bracket orders?
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.
2. How to execute bracket orders?
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.
Example of bracket orders
- Mr A wants to buy 100 quantity of X share @INR 220. He wants to keep his stop-loss limit at INR 180. Also, his target profit is INR 250. He can enter into a bracket order where he can punch all these three orders simultaneously in one click.
- In this example, INR 220 is the limit buy order of Mr A. If the share price will not hit the trigger price the order will not execute. In this scenario, all three orders will get cancelled.
- If LTP of the X share hits the target price of INR 220, the order will get executed. In this case, one of the other two orders, i.e. either the target profit order or the stop-loss order will get executed.
- If share will move in the upward direction and reaches the target set by Mr A then the target profit order will execute. In this case, the stop loss order will get cancelled.
- If share moves in the downward direction and hit the stop loss trigger price, then the stop-loss order will execute. In this case, the target profit order will get cancelled.
- The other scenario is where limit order gets executed, but the share price does not hit either the target or the stop loss. In this case, the order will be squared off at the market price before the market closes.
3. How to place a bracket orders?
Following steps will help a trader to understand how to place bracket orders:
- Place a limit order to buy/sell to enter a new position.
- Choose either ticks or absolute to place a target/square off order.
*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.
- Similarly, place a stop loss order by choosing either the ticks or absolute as explained above.
*Select 200 ticks or 10 absolute points respectively if stop loss target is at 10 Nifty points.
4. Is trailing stop loss better than a fixed stop-loss order in bracket orders?
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.
Illustration on how trailing stop loss works
Consider the following example to understand how trailing stop loss works–
- Mr A places a limit order to buy a lot of S&P Nifty 50 at 8580 which is currently trading at 8575. Mr A is confident that Nifty will move up by 50 points and reach at 8630. He sets his target profit at 50 absolute points (1000 ticks).
- To have this chance of booking profit, Mr A is ready to bear a maximum loss of 25 points. Therefore, Mr A needs to place a stop-loss order at 25 points, i.e. 8550.
- Mr A initiates the bracket order by placing a limit buy order at 8580. Next, he places his target profit/exit order at 8630 by choosing 50 absolute points. Lastly, he places a stop loss order at 25 absolute points.
- Consider a scenario where the index moves up and go to 8625 and then come back down at 8540. In this case, Mr A will suffer a loss whereas he has pretty fair chances to book a profit. Thus, to avoid such circumstances, trailing stop loss is a better option than the fixed stop loss.
- Continuing with the above example, suppose Mr A chooses a trailing stop loss of 25 points and set trailing ticks at 1 point. Now every time index will move up, the stop-loss will also move up in tandem with the index.
- Now if Index moves up to 8620, the stop-loss will also rise to 8590. Moreover, Mr A will still book a profit against his lacing a trailing stop loss order chance of booking a profit is more and loss is limited.
5. What are the advantages of bracket order?
Following are the advantages of the bracket orders:
- It facilitates to place target/exit orders, and stop-loss orders along with the limit buy/sell orders.
- It is time-saving. The trader does not have to monitor the screen after placing a bracket order.
- Keep control of emotional behaviour.
6. What are the disadvantages of the bracket orders?
The disadvantages of the bracket orders are as follows:
- Bracket orders are allowed only for limit orders.
- Bracket orders are intraday orders, and they get squared off before the market closes.
7. What is the difference between bracket orders and cover orders?
In the following ways, bracket orders differ from cover orders –
- Traders can enter into a new position into a cover order at market price as well as limit price.
- Only limit orders can be placed in case of bracket orders.
- Cover 0rders are two-legged orders. Compulsory stop loss order accompanies the initial buy/sell order.
- Bracket orders are three-legged orders. Stop loss order and target profit/exit order, both accompany the initial buy/sell limit order.
- When a trader exits the cover order, the stop loss order does not get cancelled automatically.
- When a trader exit the bracket order, the stop loss order and the target profit order gets cancelled automatically.
Want more information on COVER ORDERS? Visit our blog –
8. How to exit a bracket orders?
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.
9. How to modify bracket orders?
I am explaining with the help of two scenarios on how to modify bracket orders.
Scenario 1 – When the initial buy/sell limit order has not executed
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.
Scenario 2 –When the initial buy/sell limit order has executed
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.
10. What are the margin requirements for bracket orders?
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.
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