Bracket
Investors use this type of order when they want to sell a security at a pre-defined level of profit or to sell with a pre-defined loss. The order can be placed as a buy (to secure a short position) or to sell.
A Bracket type order can be used to realize a profit or loss at a predetermined level.
Example of use:
Sell order:
By using a single order, the investor secures the purchase price of the securities so that their sale occurs at the profit level defined in advance or at the level of the maximum predefined allowed loss.
Buy order:
Due to the nature of the order, a buy order in this case is mainly used to cover open short term positions (short sales). Such an order is settled at the profit level defined in advance or at the maximum allowed loss level as defined in advance.
Why use a Bracket order?
Trading with standard orders including Limit Price and Stoploss orders allows the investor to ensure at least one side of the potential development of the price, i.e. a Limit Price order can be used to realize a profit or a Stoploss order can be used to abandon a position with a sale at an acceptable loss level.
The investor must continuously monitor developments on the market and use this monitoring to determine if the stock is rising or falling and change the Stoploss or Limit order, which places huge demands on time. A Bracket order combines both types of "elementary" orders, thereby covering both sides of potential developments in a single order, sparing the investor the need to continuously edit existing and enter new orders.
NOTE:
1) In order to limit the risk due to the technical delay in the reaction of a Bracket order during sudden changes in prices on the market the order has the following limitations:
- the order can be used on marginalized securities
- with a minimum allowed range between the profit Limit Price and the Stop Price at 6% of the lower of the two prices
2) Funds are always blocked for a Bracket order up to the maximum possible amount for the validity of the order, i.e. regardless of if the active area is currently the Limit Price or Stoploss part of the order.
WARNING:
In the event of sudden changes in prices (e.g. the announcement of price-influencing information) a situation may occur where the market price moves outside the range entered by the investor and the Stoploss order will be created with a delay. When using a Bracket order, the investor is aware of the fact that the broker has no responsibility for damages caused by this technical delay in the reaction of the order to market conditions.
Placing an order:
The investor has purchased securities at a price of USD 10.00 and his or her investment strategy is to realize a profit of 15% while limiting acceptable losses to 5% in the event prices move downwards. In this case the investor places a sell order by pressing the "Bracket" button.
The Limit Price is entered into the order window, in this case USD 11.50, using the "High price (USD)" field and the Stop Price, in this case USD 9.50, is entered into the "Low Stop Price (USD)" field. It is also good to enter USD 9.00 into the "Low price (USD) field (once the Stoploss side of the order is activated meaning in the worst case scenario this price will be used - if nothing is entered, the order will be sent as a "Market" order meaning it will be settled at any price).
If the price reaches USD 11.50, a sale will be completed at this Limit Price. If the price drops to USD 9.50 the Stoploss sell order will be activated and completed at the price of the best current bid (at worst the Stoploss Limit Price, in our case USD 9.00, which we entered into the "Low price (USD)" field).
