Over the past years, bracket orders have gained significant traction among investors, particularly those involved in intraday trading. Most trading platforms nowadays offer bracket order facilities to clients that help them save a lot of time and effort that’s spent on placing separate orders. So, what exactly is a bracket order, its characteristics, and the benefits that it brings to the table? Let’s find out.
Bracket order is a type of market order in intraday trading that combines a buy order with a stop loss and target order. This order is meant to help you, as a trader, square off a favourable position at the end of the trading session. A bracket order combines three orders into one. To put it otherwise, it brackets your order.
In a bracket order, along with the initial order, you can place two opposite side orders as well. One of the most advanced types of order, it involves trailing stop losses and auto cancellation.
The three different types of orders embedded in a bracket order are:
Let’s understand the above types of order with a numerical example. Suppose you place an initial order to buy the stock of a company at Rs. 100 per share. The target order and stop-loss order are placed at Rs. 125 and Rs. 95, respectively. Now, if the stock price rises and reaches Rs. 125, then the target order or take profit order gets automatically placed, and stop-loss order gets cancelled.
If the stock price falls to the stop-loss limit set by you, then the target order gets cancelled, and the order gets executed at Rs. 95 per share. There is also a chance that the main or initial order also doesn’t get placed. If the stock price fails to reach Rs. 100, then you will not be able to buy the stock in the first place.
Note that if an order doesn’t get placed then the bracket order is cancelled at the end of the trading day as you can’t carry forward it in the next trading session.
Now that you know what exactly is a bracket order, let’s discuss the various advantages that it brings to the table. Some of the prominent ones are as follows:
This is one of the most significant advantages of a bracket order. It allows you to place 3 orders at one go and not place them differently, which can eat up a lot of time and effort. It’s a highly useful feature for intraday traders, who have limited time at their disposal to square off a favourable position.
Risk management is one of the vital aspects of trading. Effective management of risk helps in managing potential gains and losses. With the help of a bracket order, you can significantly bring down the quantum of risk as it allows you to either book a profitable position with take profit or target order or help curtail losses with the help of stop-loss order.
This is another major advantage of a bracket order. It allows you to put your orders and be rest assured that either the take profit order or stop-loss order will get executed. In other words, the trade will be either in a profit or in a loss. There is no need to constantly monitor every movement for booking profit or loss.
With the help of our bracket order on our trading platforms, you can ensure that either profit or loss lies between an acceptable margin that you have set for yourself. It also helps you keep emotions out of picture and execute a trade efficiently and effectively.
Emotions clouding your judgment, more often than not, leads to flawed investment decisions, resulting in losses and wealth destruction. You don’t need to pay any special charges for using the bracket order facility on our platforms, and it’s quite easy to execute.
Having said that, it’s essential to keep in mind that outcomes from bracket orders depend entirely on the selection of stock and how you pick up stop loss and target order. Understanding how stock market works and the nitty-gritty of intraday trading will help you leverage the potential of bracket orders to the maximum.