Bracket Order

Table of Contents

Bracket Order
What is a bracket order
Understanding a bracket order
Benefits of a bracket order
Types of bracket order
Example for a bracket order
Frequently Asked Questions

Bracket Order

A bracket order is an interesting order that allows stock market traders to be protected while selling and buying trading orders at the end of an intraday trading session. A bracket order provides stop-loss, which will trigger when a specified trigger price is hit, thereby protecting the user.

What is a bracket order

A bracket order can be defined as an intraday trading strategy that allows its user to buy and sell orders at a target price while being protected under the stop-loss. It contains three orders-

Sell or buy order
The upper limit is called the target price
A lower limit called the stop-loss limit

Understanding a bracket order

Trading in a stock market has always fascinated people, but when the stock dips below market value, that’s when people start to panic. When bracket order is used, the stop-loss can protect your investment from a sudden market downfall. Essentially, it brackets/shields your order and hence the name. Intraday traders use it as a strategy to buy and sell stocks without too much variation in the stock price.

Let’s take a look at a scenario. You bought the stocks of a company at $4 per share and set your stop-loss and target level at $3.6 and $4.5 respectively. These limits will act as a bracket that will shield your investment from sudden loss. So, if the share price of your stock falls to $3.6, the stop-loss limit will be triggered and the upper limit will get cancelled and vice versa. However, both limits can’t be triggered at once. Also, since it’s an intraday trading order, nothing will get carried to the following day.

Benefits of a bracket order

Here are some of the benefits of bracket order-

It is an essential strategy that allows intraday traders to square off all of their orders at a profitable point before the day is over.
Traders can use it to place three orders at the same time.
Traders can also implement a trailing stop-loss when trading in an intraday trading session. This allows the trader to make real-time adjustments to the stop-loss level depending on the position of the price and the direction it’s flowing towards.

A bracket order allows traders to avoid a sudden risk by selling the stock at a profit or at a limited loss in the worst-case scenario. That’s because when you place a bracket order, two other orders are also placed simultaneously.

Types of bracket order

A bracket order can be divided into two types-

Long bracket order: The long bracket order is when you need to make some bucks by selling your stock during an increasing rise in cost. In this case, the stop-loss level seems to be lower than what is usually set by the trader, yet the target price is higher than the buying order limit.
Short bracket order: The short bracket order is often used by traders to benefit from a descending price trend of a stock. The trader will sell this stock at a higher price, only to later buy it again at a lower price. This may seem counterintuitive when many traders do this when they bet against the value appreciation of the asset.

Example for a bracket order

Suppose you decide to purchase a few equity shares of XYZ International company for $5 per share. But, in case the value of the stock increase to around $5.2, the target price may get triggered and the stop-loss will be cancelled.

Frequently Asked Questions

What's the difference between the bracket order and the cover order?

Here are some of the differences between a bracket order and a cover order-

When you place a bracket order, two other orders are also placed simultaneously. That’s because the bracket order has three legs in total as opposed to the two legs of the cover order.
Traders use the bracket order to profit from the purchase and sale of the stock as well as safeguard them in case of any loss.
When it comes to a bracket order, the position can get squared off if the target/stop-loss price is triggered or if it does not get executed in the first place.

What is meant by intraday trading?

The stock market is subjected to price fluctuations and can be quite risky, so there are many traders who believe in intraday trading. Intraday trading means you can purchase and sell stocks on the same day. It allows traders to save their investments by selling or purchasing their stocks before the day ends. Since an intraday market closes at the end of the day, you will complete any and all of your transactions before the market closes. An opportunity once missed will be missed forever.

Is bracket order an intraday order?

A bracket order is a type of intraday stock market order where traders will need to buy or sell their stocks before the market closes at the end of the trading day. This market can be very competitive but is less prone to risk, thanks to stop-loss orders.

What is the difference between a bracket and a limit order?

Both bracket and limit order has a minimum and a maximum limit, and if the market price of a stock breaches this limit, it is either bought or sold. However, there are some slight variations to them that set them apart. Here are some of the variations between the bracket and limit order-

A limit order can be valid for as long as 30 days, which cannot be the case with a bracket order as it is an intraday order, meaning the purchase and sale must happen on the same day.
A limit order can be employed alongside others such as stop orders to avoid even larger losses. However, the same cannot be said for the bracket order.
A limit order can be a hit or a miss because of the rather competitive market, but a bracket order tends to be generally safer.