Everyone enters the stock market with the intention to earn maximum profits, but many among them quit because they are scared of facing much loss. But what if you are able to manage the loss? Yes! you heard it right. You can actually provide a shield to your trade with specific order types i.e. bracket order. Wondering what is a bracket order?
Well! you are on the right platform as here you would be able to learn every minute detail of the bracket order.
It’s a misconception that risks or misfortunes in trading cannot be stopped or avoided.
However, if you have knowledge and understanding of the ways in which you can handle your losses in intraday trading in a quick way, then you won’t be required to glue to your market watchlist or screen.
Do you also wish to learn the same and understand how an order type can turn your bad trading into fortunes?
Well then, let’s begin. Shall we?
Bracket Order in Share Market
The bracket order in the share market is an advanced type of intraday order which is made by the combination of two order types namely stop loss and target or profit booking order. In short, it is a three-legged order that includes three prices namely, entry price, target price, and stop-loss price.
As soon as one of the orders gets initiated, the other automatically gets canceled.
Thus you are locking your profit and loss by executing the trade using bracket order.
In a way, this resembles a “bracket” that holds the losses of the traders and helps them to trade automatically. If you have a better understanding of the stock market, then Bracket orders won’t be a difficult task for you.
Without a doubt, Bracket orders are best for Algo traders!
The main objective of bracket order is to square off a profitable position by the end of the trading day however, every order is 100% accurate.
Perhaps, it works differently for every other as the stock selection is a primary factor along with the right order placement.
While trading in bracket orders, you must remember that such orders are not allowed in currency options, stock options, MCX (Multi Commodity Exchange), and stocks liked on the Bombay Stock Exchange (BSE).
Bracket Order Types
In stock market everyone enters with the motive of earning profit. Now to make profit either you get into trade with an intent of buying low and selling high when the market is moving upward or selling high and buying low when the market is moving towards downward direction.
On the basis of this there are two different types of bracket order, long bracket order and short bracket order.
Let’s understand them one by one with the help of an example!
Long Bracket Order
A Long Bracket Order is set when a trader needs to profit by the upward rise in cost or we can conclude that when a trader requires to purchase stock at a low price and later sell it at a high cost.
In case of placing long call bracket order,
The Stop Loss Order or SL order will be lower than the trader’s Limit Order and target price more than the buying limit order.
This is done by the trader so that he can shield his trading or portfolio from any sudden lower fall.
Let’s understand this with the help of an example!
For instance, if a day trader named Swayam Prakash while executing the order puts a Limit Order at Rs. 1000, then his Stop Loss Sell Order will be at nearly Rs.900 or maybe lower. While his Take Profit request will be estimated to be around Rs. 1300 or maybe more.
Short Bracket Order
A Short Bracket Order is set when a trader needs to profit by the descending fluctuation in the cost of the stock or in simpler terms, it can be said when he requires to sell the stock at a higher rate and purchase the same at a considerable price i.e. low price.
While placing a short bracket order:
The Stop Loss Order will be higher than his Limit Order while the target price is set at the value less than the limit order.
This is simply done by him to shield himself from any surprising upward rise since his exchange is placed against the value appreciation.
Now, let’s discuss this in an easy way with the help of an example!
For instance, if the same trader -Swayam Prakash puts a Limit Order at the value of Rs.1000 then his Stop Loss Buy Order will be near to the value of Rs.1100 or above, while his Take Profit request will remain at Rs.700 (approximately or lesser).
We understand this might be complicated to you without practically using it on your trading platform, however, we have presented a real-life example below that can give you a clear picture of BO or Bracket Orders.
Bracket Order Example
Understanding bracket order trading without an example is a bit confusing. And more stressful when the example is complicated than its meaning. True, right?
This is why we are presenting a simple and clear example for you. So, let’s start!
Let’s assume that an investor named Rajesh Pandey uses a Limit order while purchasing equity shares of ABC India Pvt Ltd, a hypothetical firm, at a price of Rs. 200 per share.
Since he’s a bit skeptical about the share price movement of the firm, so along with the Limit order, Mr. Pandey places two different orders too- Stop Loss at Rs. 192 per share along with Rs. 205 per share cost as Target order. This was also possible with the help of Intraday trading tools available in the market.
Now, Mr. Pandey’s order which costs around Rs. 200 is protected or bracketed by two other orders- one at a lower price and the other at a higher price.
Using the above-stated example, let’s look at the three different situations.
Situation 1: At the square-off time – Mr. Pandey submits a limit order for Rs. 200 and if in the coming period, the stock value rises and goes to around Rs. 205, at that point the target order placed by him will get consequently positioned, and normally, the SL order will end automatically.
Situation 2: Now, if the stock value drops by the value placed by Mr. Pandey at the Stop Loss limit, at that point, the target order will automatically get dropped as the order will get executed at Rs. 195 for every cost of the ABC India Pvt Ltd share.
Situation 3: Since in the share market, the bracket order or BO is generally a limit order then quite possibly the first order placed by Mr. Pandey of Rs. 200 will not be exercised. So in that all the three orders are dropped off.
In the example shared above, the share price was a limit purchase order of Rs 200. Now, in case the stock falls to reach even at Rs. 200, at that point Mr. Pandey won’t have the option to purchase the stock in any case.
In any case, in any of the three situations, if an order doesn’t get submitted, by the end of the trading day, the BO will be ended since orders like Bracket orders can’t continue for the very next day of the trading period.
Hence, we came up with three main orders while placing Bracket orders in the stock market while intraday trading, and these are given as below-
Main order position at which a trader buys or sell a stock or share
Stop Loss order
A target order or Profit Booking order
Bracket Order Margin
While trading in Bracket orders, a majority of the chunk will be surprised and overwhelmed if they receive a good margin. Although margin varies from broker to broker, however, an average margin level is shared in this section.
Generally, the positions opened in the Bracket order do not require a higher margin since another order namely Stop Loss works simultaneously.
Hence, the margin amount will be totally dependent on the price entered in the stop-loss order.
As a matter of fact, typically, for the lower stop loss, a lower margin is required by the trader, and for higher stop loss a higher margin is necessary.
Let’s have a look at the table depicting the bracket order margin for each stockbroker-
Bracket Order Margin
6 to 20 times (almost double than MIS)
up to 40x exposure in Intraday Trading
India Infoline (IIFL Securities)
Up to 40x
Up to 25x
Hence, as per the table, the highest margin is given is two brokers namely Upstox and Angel Broking. There are other brokers too which offer margin to their customers while intraday trading such as 5paisa, Fyers, Samco, Motilal Oswal, and many more!
How to Use Bracket Orders?
Once a trader has in-depth information regarding the Bracket order trading and would like to carry out the same, then understanding how to use them is also important.
If you also wish to learn how to use bracket orders then, we have shared separate steps for mobile application and web trading platforms. Generally, these steps are similar in every broker app.
Open your mobile app and enter your login details such as username or client ID along with the password. In certain mobile apps, the PAN number or Date of Birth of the account holder will be asked too, an extra security measure taken by the brokers.
Now, select the desired stock from your customized watchlist or search for the desired stock from the “Search” button.
Once, you have chosen the stock now click on the same and two options will be shown before you – buy or sell.
Here choose the desired one, let’s say “BUY” and then enter your quantity, under the Product segment select “MIS”, choose order type as SL.
Set stop loss and set target. Now, click on BO or Bracket Order as your order type.
Add the number of scrip you wish to buy or sell. And click or swipe to BUY.
Now, your order will be placed as “Bracket Order” and this is the way you can trade in BO order types from your mobile applications.
How to Place Bracket Orders in Desktop App?
The process to place a bracket order in a web-based application is quite simple and similar to the above steps.
Following are some of the essential bracket order steps that must be used in your trading terminal:
If you already have the trading platform on your desktop, laptop or PC then simply add your login credentials such as username and password. On most of the platforms, the date of birth along with a pan card will be necessary too.
Now, select the desired stock that you wish to buy or sell from your customized watchlist or search the same from the “search” button.
Right-click or simply click the stock and select your position type- BUY or SELL.
Now, enter the quantity of the scrip along with the order type as Bracket Order or BO and choose SL. Further, set your stop loss and target price in the given spaces.
Finally, enter all the required details and click on the “Enter” or “Submit” button. After verifying all the information. Hence, your day trading bracket order will be executed.
How to Place Bracket Order in Trader Terminal?
Trading via web platforms is always quick and easy since they allow easy peasy shortcut keys to make the trading process smooth. So, if you wish to use shortcuts to place a Bracket order, then follow the underneath steps-
Open your trading terminal platform and choose the desired scrip from the search or use the wishlist button.
Now, press “shift + F3” to buy the stock or shares under bracket order type.
If you wish to place a sell bracket order, then select “shift + F4” both together.
Now, add details in the order type and click on the submit or enter button given in your respective terminal.
In case, you wish to make changes in the existing bracket order, then simply click on the “order book” and choose the desired order. To modify or exit the chosen bracket order, enter the changing values in the prompted box.
However, if your bracket order has been executed. This means that you have placed three different orders namely stop-loss, limit order, and target order, then unfortunately you cannot modify or exit the trading deal.
As discussed above, bracket order is the three-legged order where one can execute the trade using three different price values (entry price, target price and stop-loss price).
But do you know what is the best way to calculate the stop loss to keep your losses and profit in check.
Well! for this you can make use of either of the three methods discussed below:
In this method, one can set the stop loss by calculating the percent of loss one can bear from a particular trade. So depending upon your analysis and of course the volatility of the stock you can determine the stop loss value while placing the intraday order.
Support and Resistance generally define the range of the movement of the stock prices and hence the trader can use these levels to determine and set the stop loss value.
For example, it is generally assumed that the stock prices generally do not fall below the support level, and hence setting the stop loss a little below the previous support can help you in minimizing the losses and also increase your chance to make maximum gains out of your trade.
Moving Average Method
The exponential moving average is generally used to analyze the stock movement. So when a particular indicator is useful in determining the direction of a particular share and so it is helpful in finding the right price value where the trader can set the stop loss.
The EMA line generally works as the support if it crosses below the closing price and hence one can easily determine the price value and set the stop loss accordingly.
Along with this, defining your stop-loss accurately further helps you in setting the target price, which plays an important role in the bracket order.
So wondering how you can define the target price?
A simple calculation can help you with this.
The target price is generally set 1.5 times higher or lower than the sell or buy stop-loss respectively.
So here if you buy a particular stock at ₹100, setting the stop loss at ₹95 then the target price would be 1.5 times the difference between the entry and stop-loss value, i.e 7.5 times.
Thus, the target price for the trade would be ₹107.50.
So, gain the right information and end up doing the profitable trade.
Is Bracket Trading Good?
Now, many traders have this thought in their mind that is bracket order trading good or not. Well, every order including bracket order depends on the stock, position, and the value placed by the trader on the Stop loss and target or profit booking order.
No doubt, this order type can easily save a trader from market losses and can help him in raising profits. All it requires is a clear understanding of the concept.
Let’s talk about some of the pros and cons of the Bracket Order.
Bracket Trading Pros and Cons
On one side if understanding the benefits of Bracket Orders is important then similarly having a familiarity with the disadvantages is necessary too.
So, let’s begin with the Bracket Order Pros!
Pros of Bracket Order
Limited Losses – Bracket Orders can in a real sense be a life belt for plenty of traders. It is a bitter fact that a stock market trader who submits his trading order without putting a stop loss is at high danger of wasting a considerable amount of his financials. With a Bracket Order accompanying an obligatory stop-loss order, it’s easy to control losses. However, to achieve the same you must be aware of some of the intraday trading indicators to amplify your profits.
Automate trading deals – Since Bracket orders are mechanized, executing orders in the securities market has become pretty more simple and much more proficient. The orders or positions of a trader will close automatically once the profits or values are met, with or without any manual work. Hence, saving you a great deal of time and effort.
Three orders with a single shot – Many traders in the stock market believe that the main advantage of Bracket Order is that it empowers them to submit three different orders or hold three separate positions in one shot. It is valuable for intraday traders who need to make the right and productive move within a single day before the market is closed.
Feature of Trailing Stop Loss –A few stockbrokers such as Zerodha, Upstox, and Angel Broking offer the feature of trailing stop-loss order in their trading platforms and mobile apps. Trailing stop loss Zerodha order gives extra protection to its customers that permit the stop loss level to get re-balanced depending upon how the current market cost is moving and in which direction and this all happens in the real market situation.
Disadvantages of Bracket Order
Some of the cons of Bracket Orders are listed as below-
A trader using a Bracket order has to complete the trade anyhow. This means that he cannot leave a position halfway. He requires to square off the trade within the trading day.
During exit positions, Bracket order trading is impractical since limit orders lose their value by the end of the day. Executed exit cost will be the market cost and can somewhat go up or down or may create a slippage from your prediction.
Once you enter a position using Bracket orders, you cannot shut them out. Moreover, if you wish to close, then you have to square off the existing position.
Apart from this, Bracket Order isn’t allowed in Stock Options, Currency options, and neither in Commodity Options.
Finally, a few of the stockbrokers in the market do not allow Bracket Order trading, and some of them like Zerodha don’t allow their customers to use Bracket Orders for stocks listed in BSE and MCX exchanges and in currency options.
Hence, the disadvantages rule the benefits. However, if you use Bracket Orders correctly and wisely then you can easily turn the cons into pros.
A trader must enter in such complex yet risk-free order types, only if they have complete information about how the stock market works and how to pick the right stock for bracket order.
Well, picking the right stock can be analyzed and understood with the help of various technical indicators available in the market such as candlestick chart patterns, momentum oscillators, RSI or Relative Strength Index, Moving Average, and many more!
Although understanding these indicators requires patience, focus, and willingness to learn, and most importantly time, however with the right approach and guidance it can be easily fulfilled.
And, along with this, having a familiarity with the stock market and its intraday trading is highly crucial as without that you won’t even know when and how to square off a profitable position.
If you are opting for Bracket order trading then you must remember that the position must be squared off within a day before the market is closed. Simultaneously, be familiar with your stockbroker square off timing as it varies from one to another.
Not just that, each trading segment and the stock exchange has a different square off time such as MCX commodity exchange square off timing is 11.30 PM and on the other side, NSE currency and NSE ( equity and futures & options ) is 4.45 PM and 3.15 PM respectively.
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