# Understanding the use of a Bracket Order

A bracket order is 3 separate orders compiled in one. There is a Target Order, an Initial Order and a Stop Loss Order. All three of these orders are embedded into a single order entry window. A bracket order is one of the most complex trading orders, involving a trailing stop-loss and auto-cancellation. The three orders that are compiled can be explained as:

Initial Order:This order creates the initial position based on which the limits are set.

Target Order:This order entails the square-off position for a trader to exit with their profits.

Stop Loss Order: When a trade becomes unfavorable for the trader, a stop-loss order squares off their limit to loss exposure.

What makes a Bracket Order unique is that when the Target order gets executed, the Stop-loss order that is pending gets cancelled, the same applies on the other way around. The Target order and the Stop Loss order create a bracket around the Initial order(hence, the name) for the trader to safely execute their trade against exposure to heavy losses. Similarly, for traders who cannot monitor the market at all times, it locks in a fixed amount of profit for them to take away at the end of a successful trade.

Bracket Order Example

Let’s consider the example of Akanksha. She is looking forward to making a quick profit over Google at Rs. 1050, which is currently trading at a price of Rs. 1000. However, a chance of Google falling below the price of 990 makes her hesitant to invest. Going with normal orders, she would have to place the following:

A buy order with a limit of Rs. 1000

A targeted sell order of Rs. 1050

A Stop Loss sell order of Rs. 990

After placing all these orders, she has to constantly monitor the market to make sure that if either of the sell orders is executed then the other orders are cancelled. There is a chance of all three orders getting executed otherwise.

With a Bracket Order, Akanksha can do all of the above in a single window. She just needs to place an order for Rs. 1000, a target price for Rs. 50 and a stop loss for Rs. 10 to cancel out all the extra time and hassle.

Trailing Stop Loss: She can avail for a trailing stop loss where if Google’s price goes up by Rs. 1 then her stop loss also goes up by the same. This new stop loss however, stays the same even if the price falls. Either way, it is a win-win for Akanksha.

It is important to remember that a Bracket Order is strictly an intra-day product and if not squared off during the market hours, the Risk Management system will square off the order a few minutes before market closure. The best feature about the bracket order is that a trader can put down orders and be rest assured that either the Target order or the stop loss gets executed, the result of which could be a quick profit or a controlled loss. There is no need to monitor the screen for booking a loss or profit.

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