Risk management is one of the critical components of any trading strategy which helps you to manage potential gains and losses. There are several risk management tools that traders use in crypto trading are stop limit, stop loss, and trailing stop orders. And, beyond these risk management tools, there are bracket orders which are accessible through advanced trading platforms like Growlonix.
Bracket order is a unique market order which is generally placed during intraday trading. This type of order combines a buy order with a target and stop-loss order. These orders are further essential for helping crypto traders hold a favorable position after a trading session comes to an end. Nonetheless, the outcome of these orders majorly depends on the choice of crypto asset, target levels, and how the trader selects the stop-loss.
You can’t use bracket orders for regular trading. In this order type, the order’s outcome depends on the crypto asset and the price levels selected. You can use bracket orders smartly for futures trading on multiple exchanges. Here, we will be discussing this unique offering by Growlonix via OCO or OSO orders. There is no direct option for bracket order in our menu for selecting the order. However, one can customize this order on the platform by combining a stop buy with an OCO order.
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What is a Bracket order?
As the name suggests, a bracket order combines three orders in one order. It includes the original buying or selling order, an upper target, and the stop-loss limit. When you place a bracket order, three scenarios can occur. Let’s explore them one by one:
Suppose you bought any crypto asset ABC for $ 100 per coin and placed stop-loss and target levels at S95 and $ 107, respectively. Two upper and lower price limits bracket the original order. At any given time, only one price level will get executed.
If the price for ABC increases to $107, the upper limit of the order will get executed, and stop-loss order will get cancelled.
In case, the asset price moves in the opposite direction and reaches to $95, in such a case, stop-loss will be applied, and the upper limit gets cancelled.
In third case, the actual order might not get placed. Bracket order is a limit order, and there is a chance that the coin price doesn’t reach the original price level of $100. In that case, the trader will not buy the crypto asset in the first place.
The three major components of bracket order are primary order, target order or the profit booking setting, and stop-loss order. Bracket orders are the multiple orders which the traders can submit simultaneously to buy and sell the same security. The bracket order contains conditions that automatically trigger buying or selling of the crypto asset whenever the predefined conditions are met. This can help a trader lock in profits and limit losses even if the asset prices move while the trader is away from his or her computer or internet connectivity is lost.
Types of bracket order
Bracket order can be used in two ways as:
· A buy bracket order will be bracketed by a high-side SELL (TP) and/or a low-side SELL (SL) order. Generally, this order is used for long trades.
· A sell bracket order will be bracketed by a low-side BUY (TP) and/or a high-side BUY (SL) order. On the other side, the sell bracket order is used for the short trades.
Both of these orders are tightly coupled with the initial position and thus, triggering either the take-profit or stop-loss orders will result in the trade position being closed. Once that occurs, there is no need for the remaining bracket to exist, resulting in the un-trigger order from the preset bracket being immediately cancelled. This is an automated crypto trading method that executes one order and cancels the other ones as per the preset conditions.
When should one use bracket orders in crypto trading?
You can set a bracket order before the trade gets executed, and it gives traders flexibility and control over their profit and loss. This trading is ideal for traders who want to trade even if they are away from their system. This kind of trading works well in volatile market trends.
When it comes to setting up bracket order On Growlonix, you may select the custom OSO and then place the STOP BUY as the primary order while the OCO order is used as the secondary order. What this essentially means is that, in this order type, you aim to limit your profits or losses within a specific price range.
Placing a bracket order
A trader can set a bracket order on an already open position. A trader can place a bracket order while placing a limit or market order. The user needs to tick the Bracket Order checkbox on the exchange from where they are placing this order. It’s time to fill in the values in the bracket order boxes. If the trader chooses not to set a bracket order while placing an order, the trader cannot modify the order when it is an open order.
In short, modifications to a bracket order are not possible. Once the open order becomes an open position, the trader can then set a Bracket Order. If you wish to place a new order with an already existing position, the trader cannot set a bracket order to the new order. The trader needs to wait for the order to become a position to place a bracket order.
Features of bracket orders
There are typically two features of a bracket order that can be triggered to execute. They are:
- Profit exit. This triggers selling of the crypto asset whenever the bid price rises to a pre-set level. It’s a way to ensure that the trader will lock in the desired gains on any asset that is appreciating in value whenever they achieve the target profit. This way avoids the chances that a trader will become overly enthusiastic about any asset that is increasing in price rather than taking profits.
- Stop loss exit. This triggers selling of the crypto asset at the market price when the price goes down to a preset level. Including this feature is the best way to limit the size of the potential loss in case the price trend goes strongly against the investor. It helps traders to avoid the urge to hold a particular asset that has lost value in hopes that its price will increase again.
Growlonix allows traders to access multiple exchanges for different order types without leaving the platform. You can easily connect to the exchanges via API.
Advantages of placing bracket orders
By bracketing the order, you can protect yourself from any losses and secure your way of earning. If one of these conditions is met, a request to exit/quit from any position is sent immediately. Here are a few advantages of using bracket orders in your crypto trading strategy:
- The bracket order is an automated order that allows you to draw down a crypto trading strategy prior to or while deciding a position. You can position the option orders here with clearly defined gains and failure exit levels or add a bracket after you place the order.
- These orders are automatic which means that they can help you trade efficiently even if you are not available on your system.
- This order offers the maximum possible options available in any order.
- These orders also provide automatic risk management for open positions.
Disadvantages of the bracket orders
Apart from the advantages of bracket orders, there are a few disadvantages too, including:
- You can’t put a limit order during exits. The price on which trade of the buy or sell order is executed would be the market order. This will be marginally higher or lower which results in a difference from your expectations.
- In this order type, entry via stop-loss order is not permitted.
- You can’t modify this order, once you’ve entered the order.
- If the trader sets their stop loss too high, the natural fluctuation of the asset’s value may trigger the stop loss order before then increasing, resulting in a loss instead of a profit.
- If the trader doesn’t understand about this order well and set the stop-loss value too low, they could bear great losses.
This order seems to be a complicated one to understand, but it’s quite easy and simple. Mostly traders use this order to minimize their risks.