A bracket order is when you place a new trade along with an exit and a stop-loss order. After your first order has been placed and executed, the system will execute two more orders on your behalf: a stop-loss order and a profit-booking trigger order. It produces a type of bracket of three orders and, therefore, the name.
So, How does a bracket order work? What are the different types of trade Suresh can take with bracket order? Well, let’s find out.
- Bracket Order (BO) Meaning in Share Market
- How Does Bracket Order Work?
- What is a Buy Bracket Order and a Short Bracket Order?
- What is Market Bracket Order?
- What is Limit Bracket Order?
- What Are the Advantages of Bracket Order?
- What Are the Disadvantages of Bracket Order?
- How to Place a Bracket Order?
- How to Square Off a Bracket Order?
- Quick Summary
Bracket Order (BO) Meaning in Share Market
A bracket order is when you place a new trade along with an exit and a stop-loss order. Once your main order gets placed and executed fully, the system places two more orders, namely, the trigger order for booking the profit and a stop-loss order. It creates a kind of bracket of three orders and thus the name.
When the profit-taking order or the stop-loss order is hit, the trade is over. It makes trading, in general, happen automatically. These kinds of orders are good for intraday trading. If your order doesn’t get filled, it’s automatically canceled before the market closes.
How Does Bracket Order Work?
You can place a bracket order with a market order or a limit order along with a stop loss and trigger price. Bracket orders can be placed for NSE Equity Cash and Futures & Options Segments, NSE Forex Futures & Options, and Commodity Futures & Options. This is not available for the Bombay Stock Exchange (BSE).
Instead of using a normal stop-loss order, you can also use a trailing stop-loss order which moves your stop-loss price up or down if the market moves by a certain value. It makes sure that your bracket order does not get executed prematurely. However, when using a trailing stop loss, you will not be able to edit your bracket order.
Using a bracket order reduces your risk as it has a stop-loss order placed and therefore lessens the bracket order margin requirements. That, in turn, increases the leverage you can have on such orders, just like cover orders.
What is a Buy Bracket Order and a Short Bracket Order?
Now let’s talk about buy and short bracket orders.
A buy bracket order is when you place a buy market or limit order with a trigger sell and a stop-loss order. A short bracket order is when you place a sell market or limit order with a trigger buy and a stop-loss order. Let’s simplify it with examples.
Buy Bracket Order Example
Imagine that you want to place a buy bracket order of 100 Axis Bank shares which is trending at ₹718.75. You are placing a market bracket order, so your order will get executed at this market rate. Along with that, you place a stop loss at ₹700 and a target order at ₹740.
So, now, if your target price of ₹740 is achieved, your order will get executed. The other option is that it would get executed if the stop loss hits. With this order, your profit would be ₹2125, while the stop loss would limit your losses to ₹1875 in case the price falls below ₹700.
Short Bracket Order Example
Imagine that you are planning to short 150 SBI shares at the market rate of ₹367.10. You place a stop-loss order at ₹378 and the target order at ₹350.
In case it hits your target price of ₹350, you will gain a profit of ₹2565. But if the market goes in the opposite direction of your trade, the stop-loss order minimizes your loss. The loss would be capped at a maximum of ₹1635.
For a bracket order, there are three main orders that get placed, and two of them get executed to close the position.
- Buy or Sell order
- Trigger order
- Stop Loss order
What is Market Bracket Order?
The above examples are of market bracket order. In a market bracket order, the initial buy or sell order gets placed at the current market rate. It helps the main trade to get executed faster. When a market order is placed with a trigger order and a stop loss, it becomes a bracket order.
What is Limit Bracket Order?
In a limit bracket order, you enter the price at which you would like your main order to get executed. That’s your desired price, and you might have to wait to get it. There is also a probability that if the desired price does not hit, your trade may not get executed at all.
For example, in the above example of the SBI sell bracket order, if you had chosen a limit order at ₹370, the order would get placed only when the price reaches ₹370 or more. It becomes a limit bracket order when such orders are placed with a trigger order and a stop loss.
What Are the Advantages of Bracket Order?
Placing a bracket order has three important advantages
- Reduces Risk: When you place a bracket order, you also place a stop-loss order, and that limits your losses to a certain amount. This reduces your overall risk profile.
- Less Margin Requirement: As a stop-loss order is in place, it gives a sense of security to the broker leading to lesser margin requirements and more leverage in your pockets.
- Automates Your Trade: A bracket order involves all the orders from the main order to the exit order. Thus, once you place the order, you can focus on other tasks at hand. If you have placed a trailing stop loss, you don’t need to modify your stop loss frequently, and that saves you time.
What are the Disadvantages of Bracket Order?
Everything has pros and cons, and the same goes with bracket order.
- You can not cancel the stop-loss order in bracket order, but just like a cover order, you can modify it.
- If your trigger price or stop loss is not reached, your bracket order will automatically get executed by the system, which would result in unexpected gain or loss.
How to Place a Bracket Order?
Below are the steps that would help you place a bracket order easily.
- Choose the stock/F&O of your choice.
- Select whether you want to buy or sell the stock.
- Select MIS, which stands for Margin Intraday Square Off.
- Select whether you want to place a market order or a limit order.
- Select the Bracket Order (BO) option.
- Enter the quantity and price (in case of limit cover order.)
- Enter stop loss value or trigger stop-loss tick size.
- Enter the trigger price at which you would like to pocket the gains.
And you are done!
How to Square Off a Bracket Order?
Just like a cover order, there are three ways in which a bracket order can get placed.
- When your trigger price hits.
- When your stop loss gets triggered.
- If none of the above options are attained, the system closes the position before the market closes. Markets have specific timings as below
- NSE Equity and Futures & Options – 3:15 pm
- NSE Forex Futures & Options – 4:45 pm
- MCX – 11:30 pm
- The timing, again, differs from broker to broker.
We hope that you are clear about the topic. But there is more to learn and explore when it comes to order types, and hence we bring you the other important order types that you should know:
|CNC vs MIS|
|After Market Order|
|Market vs Limit Order|
|What is Intraday Trading|
|Large Cap Stocks|
- A bracket order involves the main order, exit order, and a stop loss.
- Bracket orders can be placed for NSE Equity Cash and Futures & Options, NSE Forex Futures & Options, and Commodity Futures & Options.
- A buy bracket order is when you place a buy market or limit order with a trigger sell and a stop-loss order.
- A short bracket order is when you place a sell market, or limit order with a trigger buy and a stop-loss order.
- When a market order is placed with trigger order and stop-loss, it becomes a market bracket order.
- When a limit order is placed with a trigger and stop-loss, it becomes a limit bracket order.
- Advantages of a bracket order are that it makes the trade automated, reduces the risk, slumps margin requirements, and increases the trading leverage.
- If trigger price/stop loss is not reached, the bracket order will automatically get executed by the system, which would result in unexpected gain or loss.