Advantages and Disadvantages of Bracket Order

Intraday trading is the preferred trading option among the traders willing to earn profit fast. However, many experienced traders keep doing intraday trading daily where they use bracket order to control loss. Also, if you are a new trader willing to experiment in the stock market, you can try intraday trading. But most beginner-level investors hesitate a lot as they can suffer from loss. But do not worry; you can use a reliable and essential tool called bracket order which will help you minimize the loss level. 

But you might be assuming what bracket order is and what’s the benefit of using it. Thus, do not worry much as here in this article, we will be exploring it. 

What is Bracket Order?

Bracket order is a handy tool in intraday trading held in the stock market. Using this option can increase your chances of maximizing profit or decrease the chances of facing a huge loss. It works as the risk protection tool in your portfolio during intraday trading. 

Bracket order is the tool available for intraday trading to perform three orders simultaneously. And the three orders are entry orders and two exit orders. The entry order refers to your limit order which you have already set upon. The exit order is the level of your target order where you can earn profit. And another exit order means that there is a loss scenario, and the stop-loss order is taking place. 

How Does Bracket Order Work in Stock Market?

Bracket order produces the three types of conditions, and whichever is made, the trade gets executed. These three conditions are the target exit, stop loss exit, and trailing spot exit. In the dashboard of investors’ or traders’ portfolios, they can set these levels and when the criteria get fulfilled it automatically executes the trade. 

To know more, look at the below example of bracket orders.

Example of Bracket Order

Suppose Mr. Ram has purchased the shares of Rs500 each, and now he wants to sell those using BO. Hence he typed the stop-loss order at Rs450, and the goal of the order Rs550 and the current trading price of the share is Rs510.

If the prices of the shares go higher than the Rs550 or stay on it, they will be executed. And if the prices of the shares decrease and hit the stop loss order of Rs450, then also the sale will be made automatically. However, there will not be any selling activities if the share prices come back to Rs500.

Advantages and Disadvantages of Bracket Order

Advantages of Bracket Order in Stock Market

So, why you should use bracket order, it’s also a common question of many investors. Here we will discuss some crucial advantages of using BO. But before that, you should know that using bracket order and setting up profit objective, stop loss, and trailing stop can help you manage your expected profit and minimize the loss. It can be beneficial if you are dealing with a significant share or money. 

  • Bracket orders help the trader to execute their trading strategies accurately. They can decide their position and can control the gain or loss in the intraday. 
  • Many traders get distracted by their emotions, and hence sometimes it let them face loss. So, if you want to control your emotions, then you can use the bracket order feature. 
  • Using BO, you can trade in NSE, BSE, and MCX for the various securities. 
  • Here you get the option to set your stop loss and target manually, and if the criteria meet with trade, then it is executed. 
  • The trailing stop loss feature is also great, and it can increase the gain opportunity.
  • You also do not need to wait for a target or SL order for a long time during the intraday because it automatically does that. 

Disadvantages of Bracket Order in Stock Market

BO or bracket order also has some limitations; here are some of them.

  • In BO, you can not exit from the partial trade-in manner, and hence you will require to exit from the trade altogether. 
  • If you have entered the trade, you can not modify the trade until it is complete or you withdraw. 
  • Sometimes you do not get as much return through BO as you think.
  • It can also increase the brokerage charge if you use bracket order multiple times in a day. Suppose if the brokerage charge is Rs20 per transaction and you executed four transactions, then in this case, you will need to pay around Rs80. 
  • There are higher chances of making a good profit or huge loss. And if you face the loss, it can significantly affect your trading, and because of much loss, many traders also leave the trading. 

Should You Use Bracket Order in Intraday Trading?

So, a trader should use bracket order (BO) in intraday trading; it depends upon the investors. If the investor is willing to limit their loss and profit, it can be a helpful tool. However, they will stay away from other excellent opportunities and loss cases. But if you are an experienced trader and can assume the risk level with the trading opportunity, in that case, you can use BO for more output. Although, still, it is a risky option that can work and may not work sometimes. Hence whatever decision you make should be based on your analytical skills and trade calculation. 

Conclusion

Thus, in this article, we learned about the BO or bracket order, its advantages, and its disadvantages. Where we learned by using BO, you can execute the three trades simultaneously and limit the losses. Also, it is an ideal tool or feature for that trader who makes wrong trading decisions due to emotions. Using it, they can completely stay away from the effect or their emotions on the trade. At last, if the trader uses Bracket order wisely and knows about the shares and their market environment. Then they can use this feature in a better way and earn a good profit from the intraday trading. 

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