Trading in the stock market is a pretentious task given the ups and downs it brings to the table. But for traders, brokerage firms have made life simpler and more comfortable to execute relevant trades more straightforwardly. For the same, we have Bracket Orders (BO) from leading stock brokers like Zerodha that helps in keeping a constant tab on the selling and buying of stocks on pre-determined specifications.
Bracket order is a type of order that helps traders in executing trades based off pre-determined instructions of trading the stocks. It’s a way in which a trader can enter a new position with a stop-loss order and exit/target order. Once the execution of the preliminary order is carried out, the system automatically carries out stop-loss and profit-taking orders.
After one of the two orders, i.e. stop loss or profit taking is carried out, then all the remaining orders get automatically cancelled. It’s important to note that bracket order is traditionally used for intraday trading online. All remaining bracket orders must and should be executed before the market closes.
If not executed within the given time, those orders will be squared off automatically. Bracket orders aren’t allowed on the BSE currency options, stock options, stocks and MCX. For every entry made through bracket orders, traders can choose “stop-loss order” and “limit orders” as well.
Bracket orders for Zerodha remain the same. To execute such orders, usage of Zerodha’s dedicated trading platform is required, which is through its “Kite” platform. However, the execution of trades on the platform might get a bit complicated; its simple to use once fully understood. BO are available on Zerodha Kite and Zerodha Pi both.
Bracket orders on Zerodha are quite elaborate and advanced. It provides features such as trailing stop loss and stop-loss features. The technology used in creating the bracket order platform is safe and secure. But it’s necessary to understand the salient features of the platform which are given as follows:
1.All trades placed under bracket order through Zerodha get automatically squared off at 3:20 PM.
2.Bracket orders placed through Zerodha are applicable and practical online on F&O, currency, equity and not on the commodity.
To understand bracket orders from another angle, an example is given below for an overview of placing bracket orders.
Though the entire platforms act as a first-come, first-serve basis, this terminology will be understood in detail later on. Let’s say you are buying a certain number of stocks for 540 rupees. For the same, in bracket order, you will have to set a Limit price and let that be 530 rupees.
Once this is set, it’s onto the target price is set based on the trader's comfortability of hitting the selling clause. If he/she wishes to sell it 10-20 rupees higher than the limit price, it can be entered. For this, we are going to set it at 10 points above the limit price, which is 560 rupees.
Stop-loss can be set at 3 points lesser than the limit price at 527 rupees. Once the limit price, target price and stop-loss are determined, it depends on the market for the execution of these orders.
Out of the three orders (limit price, target price and stop-loss limit), the target price is executed first, then the limit price and at last, the stop-loss price. If the target price is executed first, then the stop loss will be cancelled automatically and vice versa.
Also, Zerodha Bracket Order applies to Equity, Currency and F&O but not on commodities. While the tech-enabled Zerodha Bracket Orders (BO) or algo orders could be an effective way to limit your losses, but it could be properly used only after taking note of its features and advantages.
Keep in mind that bracket orders will square off at the end though ?
Bracket Orders are excellent trading methods as you determine the exit clauses and the profits you're looking to get from the trade. However, keep in mind that if the BO clause isn't met before the market closes, it will square off automatically at that particular given price.