# Knowledge Base

## Bracket Orders: What are they and what are their benefits?

Tags: bracket order

## Bracket Orders

Bracket orders are a unique type of order also known as O-C-O orders (one cancels another) order. In this unique order type, the user has the ability to essentially place three types of orders in order.

The major benefit is that, through the placement of one order, the user can specify a profit objective and also specify a stop loss. Another huge benefit is that, if the user opts to, he can have the stop loss trail his trade when he is in profitable territory. We’ll take you through some examples to better explain this functionality

### The 3 Orders

Essentially, there are three orders that are “bracketed” into one bracket order. The orders follow certain rules and terminologies:

1. The initial order. This can be a buy or sell order, and must be a limit order. It cannot be a market order.
2. The profit objective order, also known as the square off order. This order is also a limit order.
3. The stop loss order. This is a stop loss market order.

Both the profit objective and stop loss orders are placed after the first order is filled. They are sent to the market and when triggered, get fired off to the exchange. At the same time, once one of them get filled, the other order gets cancelled immediately.

Let’s take an example, since examples always the best way to understand a new concept.

### Example: Reliance Industries Bracket Order

Assume that Reliance is trading at 1105/1105.05 and you wish to place a buy order. You don’t want to take more than a 1% loss on the trade. 1% of 1105 comes out to 11.05, so your stop loss is at 1105-11.05 = 994.95. Similarly, you would like to earn 2% on the trade. Therefore, your profit objective price is 1105 + 22.10 = 1127.10

So we have three prices:
1105.05:  The price we are going to place the original buy limit trade at
994.95: The stop-loss sell market order we are placing to limit our loss at 1%
1127.10: The profit-objective sell limit order we are placing to lock in a 2% profit.

Additionally, through the bracket order, we want to implement a trailing stop loss. Therefore, assume that the initial trade gets filled at 1105.05 and after a few minutes, goes up to 1110.05. That’s a Rs. 5 move, so our stop loss accordingly moves up  5 rupees to 999.95. Now, assume, the stock drops in price; the stop loss price still stays at 999.95. As soon as the price hits 999.95, a stop loss market order is fired to the market. As soon as it gets filled, our profit objective trade that was sitting at 1127.10 automatically gets cancelled.

### What are the benefits?

The benefits of bracket orders cannot be underestimated. You are essentially capable of placing three trades through one. Additionally, there are margin benefits when placing a bracket order versus placing three independent trades. You can download our margin files at our Dropbox