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Bracket order is an intraday trading strategy where traders place a buy or sell order with a stop-loss and a target price. Bracket orders cannot be used for delivery trading. However, traders use a bracket order to facilitate automatic squaring off at a favourable price level at the end of a trading session. However, the order's outcome depends on the stock selection and the price levels selected.
Key Takeaways
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A bracket order is an intraday order that combines an entry order with predefined target and stop-loss levels.
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It helps automate trade exits and manage risk within a single trading session.
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Bracket orders are not available for delivery trades and are squared off on the same day.
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The effectiveness of a bracket order depends on stock selection and accurate price level setting.
What is Bracket Order?
As the name suggests, a bracket order combines three orders in one. It includes the original buying or selling order, an upper target, and the stop-loss limit. Simply put, it brackets your order.
Intraday traders use a bracket order for both buying and selling stocks.
When you place a bracket order, three scenarios can occur. Let's see them one by one.
You bought stocks for Rs 100 per share and placed stop-loss and target levels at Rs 95 and Rs 107, respectively. Two upper and lower price limits bracket the original order. At any trade, only one price level will get executed.
Scenario 1: If the share price rises to Rs 107, the upper limit gets executed, and the stop-loss gets cancelled.
Scenario 2: In an opposite situation, if the share price falls to Rs 95, the stop-loss is applied, and the upper limit gets cancelled.
Scenario 3: In a third scenario, the actual order might not get placed. A bracket order is a limit order, and there is a chance that the share price doesn't reach the original price level of ₹100. In that case, the trader will not be able to buy the shares in the first place.
Here are the three most critical factors in bracket order.
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The primary order that books the trader's position
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The target order or the profit booking order setting the upper price limit
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The stop-loss
Scenario 4 (Auto Square-off): If neither the target nor the stop-loss level is hit during market hours, most brokers will automatically square off the open position near the end of the trading session because bracket orders cannot be carried forward to the next day.
Also Read: What is Intraday Trading?
How does bracket order work?
In bracket order, the original order can be of buying or selling. But the other two orders are opposite to the original order.
If the original order is to buy stocks, the other two will sell the stocks when the price reaches the limit. Only a stop loss or target limit will be placed with the original order. But if the trader doesn't put the original order, the others also get cancelled. It is because those are limit orders and not market orders.
The trader cancels the entire bracket order if the original order is not placed. And, as it is an intraday order, it will not get carried to the next day.
What are the benefits of a bracket order?
Now that we have learned 'what is bracket order in the stock market?', let's look at its benefits.
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It allows traders to place three orders at one go. It is helpful for intraday traders who only have a limited trading window to square off at profitable positions.
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Traders can also use a trailing stop-loss, which allows the stop-loss level to adjust in real-time depending on the price movement and direction.
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It allows traders to curtail risk on an intraday order. The trade either squares off in profit or at a limited loss.
Also Read: What is the Stock Market?
Types of Bracket Orders
There are two commonly used types of bracket orders that help traders manage risk and exit more efficiently during intraday trading.
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Trailing stop-loss orders
In this type, the stop-loss level automatically adjusts as the price moves in a favourable direction. If the price rises in a buy trade, the stop-loss moves upward accordingly. This helps protect unrealised gains while still allowing the trade to continue if the price trend remains positive. It reduces the need for frequent manual adjustments.
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One-cancels-the-other (OCO) orders
With this setup, the target order and stop-loss order are linked. When either one is executed, the other is automatically cancelled. This ensures that only one exit condition is applied, preventing multiple executions and helping traders manage positions more systematically within a single trading session.
Bracket order and cover order
Before comparing the two, let's understand what cover order is.
Cover order is another order type that intraday traders use. It combines two orders, the initial order and a stop-loss order. The target level restriction is missing in the cover order.
The trader will place the original order and a mandatory stop loss in the cover order. The stop loss helps limit the downward losses to a great extent.
Besides the differences, bracket and cover orders are both intraday orders, meaning they get squared off at the end of the trading session. The cover order will get cancelled if the stop loss is not executed.
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Basis of comparison |
Bracket order |
Cover order |
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Definition |
It is a three-legged order that includes an initial instruction and two limit orders |
It consists of two orders - the initial order and a compulsory stop loss |
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Significance |
Plans profit or loss |
It helps in mitigating loss |
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Squaring off |
If the initial order is not placed, the entire bracket order gets cancelled |
When the stop loss is not triggered, the trader can square off the position and lower the capital loss |
Can you cancel a bracket order?
If you are placing a bracket order through websites, you can modify the stop loss values even after the execution of the first leg of the order. Bracket orders can be cancelled totally before the main (entry) order executes. After execution, individual legs cannot be cancelled, but you can square off positions.
Conclusion
Understanding bracket orders can be useful for traders who participate in intraday trading and want a structured way to manage risk and exits. By combining an entry order with predefined target and stop-loss levels, a bracket order helps bring discipline to short-term trades.
However, this order type is best used only after gaining clarity on intraday trading concepts, price movement, and risk control. Since outcomes depend on stock selection and price levels, traders should apply bracket orders carefully and with a clear plan, keeping market conditions and personal risk tolerance in mind.
