BAJAJ BROKING
March 20, 2025
3 mins read
A bracket order is a type of advanced trading order that helps traders manage risk efficiently by setting predefined exit levels. It consists of three components: an initial order, a target order, and a stop-loss order. This setup allows traders to limit their losses while locking in profits automatically.
For traders engaging in intraday trading or margin trading facility (MTF), a bracket order provides an effective way to execute trades while maintaining control over price fluctuations. By understanding how a bracket order works, investors can make more informed trading decisions.
A bracket order is a type of market order designed to minimize risk while improving profit potential. It is structured to include a primary order along with two opposite orders—a profit-taking target order and a stop-loss order.
When a trader places a bracket order, they specify both the target price at which they wish to book profits and the stop-loss level that limits potential losses. If the stock price reaches the target level, the system automatically sells the position, locking in gains. On the other hand, if the price hits the stop-loss level, the position is exited to prevent further loss.
Bracket orders are widely used intraday trading as they offer automation, reducing the need for manual tracking. Traders can focus on multiple opportunities rather than constantly monitoring individual trades. This feature is especially useful when trading in volatile indices such as Nifty 50 Price, Bank Nifty Index Price, and Sensex Index Price.
By eliminating emotional trading decisions, bracket orders provide a disciplined approach to trading. This automated structure ensures that traders follow their strategy without being influenced by short-term market movements.
A bracket order functions as a three-legged order. Here’s how it works:
For example, suppose a trader buys a stock at Rs. 1,000 using a bracket order. They set a target price of Rs. 1,050 and a stop-loss price of Rs. 980. If the stock rises to Rs. 1,050, the system automatically sells it, securing a profit. If it falls to Rs. 980, the system exits the trade, limiting the loss.
This mechanism is beneficial for those engaged in futures and options trading as well, ensuring that trades execute efficiently without constant manual intervention.
Efficient risk management: Bracket orders help traders control risk by automatically setting a stop-loss order along with a profit target. This ensures that traders do not suffer heavy losses due to market volatility. With predefined exit points, traders can trade with confidence, knowing their potential loss.
Automation and reduced emotional trading: Since bracket orders execute trades automatically, traders do not need to constantly monitor price movements. This automation helps eliminate emotional decision-making, which often leads to impulsive buying or selling. Traders can stick to their strategy without reacting to minor market fluctuations.
Leverage and capital optimization: Traders using the margin trading facility (MTF) can optimize their capital by leveraging bracket orders. Since these orders help manage risks effectively, traders can take advantage of leverage opportunities without exposing themselves to excessive losses. This makes bracket orders a preferred choice for active traders.
Bracket orders and cover orders are both designed to manage risk in trading, but they differ in structure and execution.
A bracket order consists of three components: the main order, a target order, and a stop-loss order. This ensures that traders have both a predefined exit strategy for profit-taking and a safety net to limit losses.
In contrast, a cover order includes only a stop-loss order. While this helps in risk management, it does not provide an automated way to lock in profits. Cover orders are simpler but offer less flexibility compared to bracket orders.
Feature | Bracket Order | Cover Order |
Exit Orders | Includes both target and stop-loss orders | Includes only stop-loss order |
Risk Management | More controlled with a predefined target and stop-loss | Limited to stop-loss only |
Suitable for | Intraday and swing trading | Primarily intraday trading |
Profit Lock-in | Yes, with a target order | No, profit needs to be booked manually |
Intraday trading involves buying and selling stocks within the same trading day. Traders take advantage of short-term price movements and close their positions before the market closes.
Intraday traders often use bracket orders to execute trades efficiently while minimizing losses. With real-time market tracking, traders can leverage price fluctuations in indices such as Nifty 50 and Bank Nifty Index.
Bracket orders are a valuable tool for traders looking to manage risk while maximizing returns. With predefined target and stop-loss levels, they ensure disciplined trading and minimize emotional decision-making. Whether engaging in intraday trading or leveraging MTF, a bracket order simplifies trade execution.
If you're ready to trade smarter, open a trading account today and start leveraging advanced order types for efficient market participation!
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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A bracket order consists of three parts: a primary order, a target order, and a stop-loss order. The primary order executes the trade, while the target and stop-loss orders ensure profit-taking and risk management.
Suppose a trader buys a stock at Rs. 1,200 and sets a target price of Rs. 1,250 with a stop-loss at Rs. 1,180. If the price reaches Rs. 1,250, the system sells the stock automatically, securing a profit. If the price drops to Rs. 1,180, the trade exits, minimizing loss.
A bracket order includes both a target order and a stop-loss order, offering more control over risk and profits. In contrast, a cover order only includes a stop-loss order, making it slightly riskier.
Yes, traders can cancel a bracket order if it has not yet been executed. However, once any leg of the order is triggered, the entire bracket order gets activated.
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