The Bracket Order — A Simple Way to Manage Risk
One of traders’ biggest concerns is, how do you manage risk after entering a position?
Usually when a trader takes a position, they have a target level as well as a stop-loss level in mind.
Example situation:
I feel XBTUSDT DEC19 contracts will trade within a range in the near future.
- I’m a buyer at current levels ($9380).
- I will take profit if it reaches $9385 and take a small gain.
- I will cut my losses if it drops to $9300.
These would be your options:
- Manually watch the level and sell if prices hit your target levels. Though, you may not be able to watch it all the time.
- Put in a limit order at $9380, then once $9380 gets hit:
a. Immediately enter a sell limit (take profit) order at $9385
b. Then enter a stop loss sell order at $9300
Now you can sit and watch your trade!
This method of trading, using a take profit and stop loss, allows for risk management of any trade you put on. It’s a more disciplined way of trading.
Hence, CoinFLEX would like to introduce the Bracket Order to our users. We think it’s a very useful way for traders to manage risk, and thus an important part of our trading offerings.
What is a Bracket Order?
A bracket order is an advanced order type which combines the initial market and limit orders.
Once the initial order has traded, two orders are placed:
- A Take Profit limit order, with a pre-set distance from the initial trade (e.g. +$5 in the example above)
- A Stop-Loss market order, also with a pre-set distance from the initial trade (-$80 above)
These two orders (Take Profit and Stop Loss) are OCO (One Cancels Other). In other words, once one of these orders trigger, the other is removed.
Here at CoinFLEX, we put these orders together in one easy click!
In the diagram above, you can see a multiple bracket orders outstanding on the market (the red and blue boxes on the left), and the different price levels are shown on the graph above. Clicking the blue columns leave buy limit orders, clicking the red columns leave sell limit orders.
Using these bracket orders, you can use different strategies. Here are some examples:
- Overall bullish in the short term?
Set take profit at +$20
Set stop loss at -$20
With the same margins above and below your trade price, you are waging that the market will be more likely higher than lower. - Believe market will trade in a range and want to make smaller gains?
Set take profit at +$5
Set stop-loss at -$100
In this case, you will make small gains if the market trades around current levels, but if the market drops significantly, you could suffer large losses. - Believe the market will make a big move in the near future but aren’t sure when?
Set take profit at +$100
Set stop loss at -$5
You will get the upside if market rallies. However, you will take small losses if the market trades within a range. This also protects you on large moves to the downside.
Feel free to set smaller and larger ranges as you wish — Smaller ranges limit the risk on each individual trade, allow larger sized orders to be placed. Play around to see what fits your style of trading!
Would like to get your feedback on your experiences, any ways to improve the product, and interesting trades you are able to do using this order type!
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