Bracket Trading : Pros & Cons
The world moves too fast and is often too difficult to keep track of. Markets move even faster and in all this turmoil, Bracket Orders come as a great boon in managing your risks. As the name goes, Bracket Orders “bracket” your “orders”. However stupidly simple that may sound, that’s what it actually is.
Bracket Orders are designed to help limit your loss and lock in a profit by “bracketing” an order with two opposite-side orders. A BUY order is bracketed by a high-side sell limit order and a low-side sell stop order. A SELL order is bracketed by a high-side buy stop order and a low side buy limit order.
Buy Order = Specified price or lower (better)
Sell Order = Specified price or higher (better)
Say you buy an ETH for $400 each and he/she feels that it will probably cross $ 500 and even if it goes till $399, they are ready to take that loss for the chance of a gain. This is when a Bracket Order comes in handy where that individual can program it to buy at $400, sell as soon as the stock hits $500 or goes down to $399.
This is done by placing three orders simultaneously.
1. The first one is the limit order for the buying or selling exercise that one is looking for.
2. The second order is a profit booking order that one sets as the profit that meets your expectations.
3. The third order is a stop loss order. A stop loss order helps one exit a position as soon as the stock hits that bottom of loss. This order is a reflection of the loss that one is willing to take with the stock in concern.
1. Bracket Orders have the advantage of “set and forget”.
2. When your target is executed, your stop loss gets automatically cancelled. No manual intervention is required. Vice versa is true. In a normal order sometimes one may forget to cancel their Stop Loss and that might get executed as a separate order, without the individual’s attention, and will get squared off in evening at whatever price it gets.
3. Able to fix the target and Stop Loss in a single order.
4. Entry is possible through a limit order and this avoids slippage.
5.Have trailing Stop Loss option which is good if the price moves in the favourable direction.
6. All quantity will get executed since it is a market order during exit.
7. Bracket Orders also protect one from any technical glitches of the brokerage.
8. Bracket Orders make sure that profit or loss lies between two limits of an acceptable profit and bearable loss that you set.
9. A loss is covered as there is a compulsory stop loss.
10. The best feature about Bracket Order is that a trader can put the orders and be rest assured that either the Target Order gets executed and gives him profit or the stop loss gets executed and the trade would be executed at a loss. There is no need to monitor the screen for booking a loss or profit.
• Limit orders are not possible during exit.
• Executed exit price will be market price and can slightly move up or down and form a slippage from your assumption.
• Entry through Stop Loss trigger is not allowed so one has to submit the bracket
• Order cancellation is not possible, one needs to close their position once they have entered.
• Need to be logged in while target order executes as compared to a cover order.
• Becomes a little tough to modify a bracket order after it’s placed.
But considering how the markets go so volatile, brackets still seem like the most sensible strategy to protect your investments and still make some money.
Check out Bracket Trading on www.koinfox.com