Bracket orders 101


One way to limit your loss and lock in a profit at the same time is by creating a bracket order. An easy way to think about a bracket order is that it’s like adding two side orders, a limit order and a stop order, to your original (primary) order or to an existing position. These side orders are your profit exit strategy and your loss exit strategy.

When the condition of either of the side orders (exit strategies) is reached, even if your order is partially filled, then the order is processed based on that exit strategy and the other exit strategy is cancelled automatically.

Bracket orders are often called conditional orders. Bracket orders can be created for shares:

  • You already own
  • You don’t own yet but want to buy as part of the bracket order
  • You want to borrow but then give back when the bracket order is executed

Here’s how you would set the profit and loss exit strategies on a bracket order:

For shares you... Then the limit price you set
(your profit exit strategy) is…
And the stop price you set
(your loss exit strategy) is…
already own The highest price you want to sell your shares for to make a profit. The lowest price you want to sell your shares for, knowing it will be a loss. This is the risk you are willing to accept.
don’t own yet but want to buy as part of the bracket order A price higher than what you paid for the shares. It is the highest price you want to sell your shares for to make a profit. The lowest price you want to sell the shares you bought, knowing it will be a loss. This is the risk you are willing to accept.
want to borrow then give back when the bracket order is executed The lowest price you want to pay for the shares so you can make a profit. The highest price that you will buy the shares for. It could mean you end up with a loss on the deal.

So why would you want to do a bracket order?

Simply said, to save time. It’s an easy way to automate your trade so you don’t have to monitor it. You’ve set the ranges (exit strategies) for buying and selling that you’re comfortable with and you don’t need to keep checking in to see what’s happening or monitor the sale. A bracket order may be a good idea in a fast-moving market because you can take advantage of even small price changes quickly.

Is there a downside to a bracket order?

Yes. Even if only a part of an order is filled (a partial fill) because the condition of one the side order (exit strategy) is met, the opposite side order is cancelled automatically. You won’t have a chance to change your order. So the advantages you can gain in a fast-moving market can also turn into disadvantages.