A Bracket Order is a special type of order through which the user can take an intra-day position and take advantage of extra exposure while being protected through a stop loss order and a profit objective (profit booking) order.
The system will place three orders simultaneously: a limit order (1st leg), a corresponding stop loss market order which would only get triggered at the specified stop loss trigger price (2nd leg), and a corresponding profit objective limit order which only get triggered at the specified profit objective price (3rd leg).
If the stop loss trigger price is hit, the stop loss order gets executed as a market order and the 3rd leg (the profit objective order) automatically gets cancelled. Similarly, if the profit objective trigger price gets hit, the stop loss automatically gets cancelled.
The combination of all three of these orders being placed simultaneously is known as a Bracket Order. Bracket Orders help you limit any potential losses that could be incurred on a position while also allowing you book profits at your specified target price.
The benefits of Bracket Orders are tremendous. You can simultaneously place, essentially, three trades through one trade, thereby greatly reducing the exposure required while minimizing your risk (through the stop loss order) and giving you the opportunity to book profits at your preferred price. The system ensures that once either your profit target or stop loss order gets hit, the other automatically gets cancelled. It also comes with trailing Stop Loss functionality that ensures your stop loss orders automatically adjusts and ‘trails’ the current market price.
There is limited risk due to the inherent way bracket orders work. Traders also have better control over booking profits. This is a example of a win-win-win example! Since there is always a stop loss corresponding to each trade, Bracket Orders can help users trade in a more disciplined manner. Users can take advantage of the margin benefits as well, using the Bracket Order facility to leverage their positions greatly while enjoying the benefits of a stop loss to protect them from downside risk. Overall, Bracket Orders reduce downside risk but do not impose any limits on their returns.
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