What Is Bracket Order?

Bracket Order is a type of advanced order that helps traders manage risk. It involves placing a main order along with two additional orders: a target order and a stop-loss order. One is set to make a profit, and the other is for limiting losses.

Bracket Order Meaning

A bracket order is designed to protect traders by automating both profit-taking and loss-limiting actions. It involves placing an initial buy or sell order, accompanied by two more: one to lock in profits and another to minimize losses. These two additional orders execute automatically based on predefined prices.

In a bracket order, once the main order is executed, the other two orders are linked. If the target price is reached, the profit-taking order executes, and the stop-loss order is automatically canceled. Similarly, if the stop-loss is hit, the target order is canceled. This setup helps traders automate their strategies and minimize risks. Additionally, it ensures that the trade is always monitored and managed even in volatile market conditions. Traders use this to reduce manual interventions and to lock in profits while managing potential losses.

Bracket Order Example

In a bracket order, a trader places an order to buy a stock at a specific price. At the same time, they set two additional orders: a target order to sell the stock at a higher price for profit, and a stop-loss order at a lower price to limit potential losses.

For example, a trader places a buy order for a stock at ₹1,000. They set a target order at ₹1,050 to take profits and a stop-loss order at ₹980 to prevent significant losses. If the stock price rises to ₹1,050, the target order is executed, and the stop-loss order is canceled. If the price falls to ₹980, the stop-loss order is triggered, and the target order is canceled. This method allows the trader to automate both profit-taking and risk management.

How Bracket Order Works

A bracket order works by allowing a trader to place a main order, along with a target and stop-loss order. The target order secures profits, while the stop-loss order limits potential losses. Here is the step-by-step process:

• The trader places a buy or sell order.
• A target order and stop-loss order are set simultaneously.
• If the target price is reached, the trade is executed, and the stop-loss order is cancelled.
• If the stop-loss price is hit, the trade is executed, and the target order is cancelled.
• The bracket is automatically managed based on the pre-set price levels.

Types Of Bracket Orders

There are various types of bracket orders that allow traders to manage trades based on their strategy and market conditions. These orders help traders control both profits and losses automatically. The main types of bracket orders are:

• Limit Bracket Order: In this type, the trader sets a specific limit price for the main order. The target and stop-loss prices are predefined, and the main order will only execute when the stock hits the limit price.
• Market Bracket Order: This order is executed at the current market price. Once the market order is placed, the target and stop-loss orders are set, and the trade is executed immediately at the available market price.
• Trailing Stop-Loss Bracket Order: In this type, the stop-loss price automatically adjusts as the stock price moves in favor of the trader. This helps lock in profits while still providing downside protection.
• One-Cancels-the-Other (OCO) Order: In an OCO order, both the target and stop-loss orders are placed simultaneously. When one of the orders is triggered (either the profit target or stop-loss), the other is automatically canceled. This ensures only one of the two orders is executed, minimizing risk.

Advantages Of A Bracket Order

The primary advantage of using a bracket is its ability to help traders automate both profit-taking and risk management, which reduces the need for constant market monitoring and helps avoid emotional trading decisions. Other key advantages include:

• Risk Management: Bracket orders allow traders to set both a target price for profits and a stop-loss for limiting potential losses. This dual protection ensures that traders can lock in profits while minimizing the impact of market downturns.
• Automation: Bracket orders are automated, meaning once the order is placed, the system handles both profit and loss management. This saves time and effort as the trader doesn’t need to manually track or adjust the trade throughout the session.
• Reduced Emotional Trading: By pre-setting both profit targets and stop-loss levels, bracket orders help reduce the influence of emotions like fear or greed. Traders are less likely to make impulsive decisions because the trade follows a pre-defined plan.
• Efficient Execution: Since bracket orders are executed automatically, traders can avoid missing key price levels. Whether the stock price reaches the target or the stop-loss, the trade will be executed at the predefined price, reducing the risk of manual errors.
• Flexibility in Strategies: Bracket orders offer flexibility to traders by accommodating various strategies, such as limit, market, and trailing stop-loss orders. Traders can adjust their approach based on market conditions and risk appetite.

Disadvantages Of Bracket Order

The main disadvantage of a bracket order is the lack of flexibility once the order is placed. Traders cannot modify the target or stop-loss after the main order has been executed, which can be limiting during volatile markets. Other key disadvantages include:

• Limited Order Modifications: After a bracket order is placed and the main order is executed, it becomes impossible to modify the target or stop-loss. This limitation can be problematic in rapidly changing market conditions where traders may want to adjust their strategy.
• Execution Risk: Bracket orders are subject to execution risk, especially in volatile or illiquid markets. If the market gaps are significantly beyond the stop-loss or target levels, the order may not execute at the expected price, leading to either larger losses or missed profit opportunities.

Bracket Orders Vs Cover Orders

The main difference between bracket orders and cover orders is that a bracket order includes both a profit-target and a stop-loss order, while a cover order only involves a stop-loss to limit potential losses, without setting a predefined profit target. Other key differences between bracket orders and cover orders:

How To Place Bracket Order In Alice Blue

Placing a bracket order on the Alice Blue platform is straightforward, allowing traders to manage risk and automate their trades effectively. Here are the steps to place a bracket order in Alice Blue:

1. Log into Alice Blue Account: Begin by logging into your Alice Blue trading account. Ensure that you have adequate funds available and have reviewed relevant market data to make informed decisions.
2. Select the Stock: Choose the stock or asset you wish to trade. Conduct a thorough analysis of its current market trends and forecasts to determine the potential direction of the price movement.
3. Choose the Bracket Order Option: In the trading interface, select the ‘Bracket Order’ option. This order type enables you to set both a stop-loss and a take-profit level, providing an automated risk management approach.
4. Set the Main Order Price: Define the price at which you want to enter the trade, whether it’s a buy or sell order. This will act as your entry point into the market.
5. Define Take-Profit and Stop-Loss: Set your target profit (take-profit) and the maximum loss you are willing to tolerate (stop-loss). These limits ensure that your trade is closed automatically at the predefined levels, protecting your profits and minimizing losses.
6. Execute the Order: Review your setup and execute the order by clicking on ‘Buy’ or ‘Sell’ depending on your strategy. This step will confirm your trade with both the profit and stop-loss conditions in place.
7. Monitor and Adjust (if necessary): Once your bracket order is live, it’s important to monitor market conditions. While the order automates risk management, staying updated with market changes allows you to make timely adjustments if needed.

How To Square Off A Bracket Order

Squaring off a Bracket Order means closing the open position before the target or stop-loss price is reached. This allows traders to exit the trade manually, often in response to unexpected market movements. Here are the steps to square off a bracket order:

• Log into your trading account: Access your Alice Blue or any relevant trading platform where your bracket order is placed.
• Go to the ‘Order Book’ or ‘Positions’: Navigate to the section where your open orders or positions are listed.
• Select the Bracket Order: Find the specific bracket order you want to square off.
• Click on ‘Square Off’: This option will allow you to manually close the trade and exit your position immediately.
• Confirm the action: Once you confirm, the system will close the position, and both the target and stop-loss orders will be cancelled.

Bracket Order Meaning-  Quick Summary

• A bracket order allows traders to place a main order with predefined profit and loss levels.
• In a bracket order, once the main trade is executed, two additional orders—target and stop-loss—are automatically linked.
• An example of a bracket order is when a trader sets a buy order at a specific price with a target for profit and a stop-loss for risk control.
• Bracket orders work by setting a main order, along with stop-loss and target orders, which automatically execute when specific price levels are reached.
• Types of bracket orders include limit bracket orders, market bracket orders, trailing stop-loss orders, and one-cancel-the-other (OCO) orders.
• The primary benefit of using a bracket is that it allows traders to automate both profit-taking and risk management, reducing the need for constant market monitoring and aiding in the avoidance of emotional trading decisions. 
• The main disadvantage of a bracket order is the lack of flexibility after it is placed. Traders are unable to change the target or stop-loss after the main order has been executed, which can be restrictive during volatile markets.
• Bracket orders differ from cover orders because bracket orders include both a stop-loss and profit-target, while cover orders only include a stop-loss.
• Placing a bracket order in Alice Blue involves selecting the stock, setting the main price, and defining stop-loss and target levels.
• Squaring off a bracket order involves manually closing the trade before the stop-loss or target levels are reached, by using the ‘Square Off’ option in the platform.
• Invest in the stock market for free with Alice Blue.

What Is A Bracket Order In Stock Market – FAQs