Bracket Order

Bracket Order is an intraday trading strategy combining three orders: buy order,  stop-loss, and target order. Bracket orders can also be used for regular trading. For traders, bracket orders can be useful to have a favourable position after a particular trading session ends. In this blog, we will understand what are bracket orders, the difference between bracket order and cover order, how bracket order works, and a lot more. 

What is Bracket Order?

A Bracket Order is an automated trading process and it allows traders to define a buy/sell order, a target order, and a stop-loss order simultaneously. In the bracket order, the trade is performed with primary order, then by the target order and in the last with stop loss order. This helps in squaring off the position immediately when either the target is hit, or the stop-loss is triggered. The outcome of bracket orders majorly depends on the selection of stocks, target levels, and how the trader has selected the stop loss order. 

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How Does Bracket Order Work?

After understanding the bracket order meaning, let’s now understand how it works: 

• There are three interconnected orders placed when a trader places a bracket order. The three orders are the initial order, profit target order, and stop loss order. 
• When the initial order is placed, both the profit target and stop-loss orders are activated. 
• If the profit target is hit by the market price then the position gets squared off automatically to lock in the profit. It happens conversely if the price drops to the stop-loss level, the stop-loss order is triggered, and the position is closed to prevent further losses.
• If the price of stock or asset reaches the profit target of a trader then the profit target order will be executed automatically. Squaring off the position at the desired profit level. 
• If the price of the stock moves unfavourably and reaches the stop-loss level, the stop-loss order will execute, automatically squaring off the position at the predefined loss limit. This minimises the risk of further losses.
• With bracket orders traders can predetermine both the maximum profit and loss. This offers a clear understanding of the risk or reward framework. 

Advantages of a Bracket Order

Now that you understand what is bracket order and how to use it, let’s take a look at the benefits it offers. The following are the advantages of a bracket order 

• Bracket order traders can place three orders all together in one go. This is beneficial for intraday traders with limited trading windows to close profitable positions. 
• Without monitoring the market regularly with bracket orders traders can secure profits. 
• By using the trailing stop loss, traders can adjust the stop loss level in real-time. This depends on the price movement and direction. 
• Bracket order offers clarity on when to exit based on the profit and loss. This promotes a structured approach.
• Bracket orders have reduced monitoring because once the bracket order is set up then the system will automatically handle the exits. 

Bracket Orders Vs. Cover Orders

Following are the differences between bracket order and cover order.

Conclusion
Bracket Orders help traders manage their trades by combining buy/sell orders, a stop-loss, and a profit target into one. With this automatic approach, intraday traders can lock in profit and limit losses without constant market monitoring. With the help of an online trading app, traders can easily place bracket orders and manage trades on the go. With bracket orders, traders can stay disciplined as they offer structured risk and reward management.  No matter, if it's regular trading or short-term strategies, bracket orders help in both profit-taking and risk-limiting procedures.