All you need to know about Bracket Orders
When you place a bracket order, you place two opposite side orders depending on whether you are buying or selling a share. If you are buying a share, you will bracket it with a high-side sell limit order and a low-side sell stop order. If you sell a share, you will bracket it with a low-side buy limit order and a high-side buy stop order. Let’s examine these terms with the help of examples.
Let’s look at a situation in which you place either a limit or stop order with your broker. Here, instead of going with the market price, you go with a stock price that you specify. In a limit order, you select the least acceptable price for the transaction. In a stop order, you set the price at which the transaction will take place.
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If you set a limit order to buy 100 shares of XYZ Co. at Rs. 50.15 each, you will buy the shares only when the price of the shares is at Rs. 50.15 or lower. If you want to sell 100 shares of the same company and set a limit order of Rs. 70.15, you will be able to sell the shares only when the price is at Rs 70.15 or higher.
If you place a stop order to buy 50 shares of XYZ Co at Rs. 50.15 each, then the transaction will be executed only when the price of the share is at Rs 50.15. If you want to sell the same shares at Rs. 100 each, the sale will take place only when the price reaches Rs.100.
Now that you have understood the concept of bracket orders, let us see the difference between a bracket buy order and a bracket sell order.
Bracket buy order
Let’s assume that you place an order to buy 100 shares of ABC Co at Rs. 100 each. You will also place a sell limit order at a higher price of Rs. 120 each. You also place a sell stop order at Rs. 95. Your order is executed if your price moves either up to Rs. 120 or down to Rs. 95. In this manner, you can make a profit of Rs. 20 per share and limit your losses to Rs. 5 per share with the stop-loss order. This is a bracket buy order.
Bracket sell order
Assume you place an order to sell 100 shares of ABC Co at Rs. 100 each. You will also place a buy limit order which is lower than your sell order. You place your buy limit order for these shares at Rs. 80 each. You also place a high buy stop order at Rs. 105. Your order is executed at either Rs.80 or Rs.105. This way you can make a profitable gain of Rs. 20 per share and limit your loss to Rs. 5 per share. This is a bracket sell order
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While understanding the details of pricing the orders could be challenging, a bracket order helps you profit from the transaction while minimising your losses.
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