We all know about the popularity of crypto trading nowadays, and every person can place trades without hassles. But managing those trades is daunting, requiring special skills and profound knowledge of trading.
Here’s where bracket orders come into play. It is a perfect strategy to take entry into the market. All the entries can be placed simultaneously with constructive risk management.
It is not only about crypto trading, but bracket orders are also popular in equities and futures. Anyone can place trades but managing them is a complicated task. So let’s have a better understanding of bracket orders.
What is Bracket Order?
Bracket Order executes three orders to save time and frustration by bringing all trades into a single task. For example, a trader places a buy order and two sell orders. Bracket Orders are less prevalent in Crypto Trading, but the rise of crypto trading will help in Bracket orders’ evolution.
Bracket Orders are conditional orders that will bracket the order and will be very helpful in intraday trading. It is a combination of three orders to make a perfect trade; the main aim is to bracket the trade.
The other two orders will be sold if the initial order is a buy order. While if the initial order is a sell order, then the other two will be buy orders. Let us understand more about it.
How does Bracket Order work?
A Bracket Order consists of three conditional orders in which the first order will be at the prevailing market price you want to buy. Then the other orders will be stop loss and future profit prediction price.
For example, if you are buying an asset at $100. Along with this, you now have to place two more orders. Now, if your target is to sell at $130, you must place a limit sell order at that price. If the price goes up, the order will get triggered immediately.
On the other side, the third order will be for stop loss. Again, if the market is not performing as per your condition, you can go for stop loss at $95.
If the price meets $95 or $130, all other orders will get cancelled immediately.
It is not finished yet; you can also go for trailing profits. If the market is moving around $1200, you can change your stop loss to $1100. Now you cannot make any loss; it is straightforward for now.
Advantages of Bracket Orders
- It helps reduce the risk of higher loss by placing a stop loss at predefined markets.
- It allows traders to set targets and stop losses in a single order.
- Trailing stop-loss is the most significant positive in bracket orders because you can increase your profit chances if the market moves in your favourable direction.
- These are automated orders, which gives an advantage to the traders by preventing losses.
- It offers an option for automated risk management.
Disadvantages of Bracket Orders
- You cannot modify the trade-in e you entered; you can only exit the position.
- Entry via stop loss is not permitted; you must provide a bracket order at the same time as trading.
- You are not allowed to put a limit during exit.
Bracket orders benefit traders who need more time to check the real-time value of a particular stock. They can simultaneously take an entry, add a target, and stop loss. So, if the market is moving in your favour, you don’t need to check again and again.
However, if you have sufficient time, you can take advantage of trailing Stop loss, where you can book profit with assurance. We hope that this information remains insightful for you.