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A Bracket Order is an intra-day product that will allow you to place three orders simultaneously. Those three orders are:

  1. Entry Order, which is a Limit Order
  2. Exit Order, which could be your Target Order. (meaning profit)
  3. Exit Order, Stop Loss Order which can also be a Trailing Stop Loss Order. (meaning loss)

Let us now see the Pros and Cons of placing a Bracket Order

Pros:

  1. This type of Order is more like “Set and Forget”. You can set the Order and after that it doesn’t require continuous monitoring.
  2. When one side of the Order gets hit, the other side of the Order gets automatically cancelled. For instance, if the Target Order gets hit, then the Stop Loss Order is automatically cancelled and vice versa.
  3. The option of placing a Trailing Stop Loss makes it very advantageous as the Stop Loss gets automatically adjusted if the market moves in favor of the trader.
  4. What makes Bracket Order very attractive is the leverage that is offered on it. You can get up to 20 times and at times even 28 times of Leverage on your capital. The higher leverage is offered because the Bracket Order comes with a predefined Stop Loss. So with even a meager sum you can trade for huge amounts.

Cons:

  1. The most important problem with the Bracket Order is that your Order gets executed in several legs and the brokerage is levied on each executed leg of the Order. That simply means you will be paying higher brokerage if your order gets executed in several legs.

For Example: Zerodha charges Rs.20 per executed order. In the case of normal trade, a Trader would pay Rs.40 for an executed Trade. But in case of a Bracket Order, say, the Buy order gets executed in legs, you would end up paying Rs.200 for buy-side alone.

  1. The other issue with the Bracket Order is that the order modification is very complicated as it has to be done on every leg of the executed Order. This means that, if your Order is executed in ten different legs, then order modification has to be done on ten different legs.
  2. The amount involved in the Trade is high as the leverage is very high. This would also mean that the probability or chance to make higher loss is also very high thereby eroding your capital. Many tempted traders get lured by the higher leverage and end up losing their capital.
  3. Being an intra-day Product, all pending orders are squared off at a specific time {usually after 3 PM for Equity type} and there is no option to carry forward the position. You have no option to convert a “Bracket Order” to “Cash and Carry Order” even if you have the entire leveraged capital.

Verdict:

In my opinion, use Bracket Orders only when you have done your prior homework on Target price and Stop Loss Price. Do not punch in an Order without calculating your risk-taking capacity. Also do not punch in an Order if you are oscillating or unsure about the price levels.