BO stands for Bracket Order, which is a 3-in-1 order that allows the execution of three orders simultaneously in one order. The three orders are –
- Main order that reserves your required trading position
- Target order to book profit
- A stop-loss order to reduce loss
When you place a Bracket Order (BO), an initial order along with two opposite side orders is placed. BO works for both buying and selling orders.
In case you have placed a buy order as an initial order, then two more orders – the target and stop-loss orders will be placed as sell orders.
Also, when your initial order is a sell order, the other two orders (target+stoploss) would be the buy orders.
Let’s understand the bracket order with the example below.
Suppose you want to trade Coal India stock which is trading at Rs 202. You place a limit order to buy Coal India stock at Rs 200 per share. The initial order will be placed along with a stop-loss at Rs 190 per share and a target order at Rs 210 per share.
That means your shares will be bought at Rs. 200 per share (once the stock price reaches Rs 200). Now a selling order (target price) is also placed at Rs 210 per share and another selling order (stop-loss price) is placed at Rs 190 per share.
Now you can see your main position of Rs 200 is bracketed by a target price (high price) and a stop-loss order (lower price).
If the initial order is successfully fully executed, target and stop-loss orders will remain alive until any one of both orders will be executed throughout the day. If the target order gets, executed, the stop loss order will automatically get canceled. If the stop loss order is met, the target order will automatically get canceled.
That’s why the bracket order is also called OCO (One-cancels-other) order.
Let’s understand the mechanism of the BO in 3 different conditions.
Condition 1: Stock price rises
After you have placed a limit order for Rs 200 (your buy order at Rs. 200 is executed) if the stock price rises and goes to Rs 210, then the target order will get automatically placed, and the stop-loss order will get canceled.
You will book a profit of Rs. 10 per share.
Condition 2: Stock price falls
In case the stock price falls to your stop-loss limit (after your buy order at Rs 200 has been successfully executed), then the target order will get canceled as the stop-loss order will get executed at Rs 190 per share.
You will book a loss of Rs. 10 per share.
Condition 3: Stock price doesn’t reach initial order price
If your bracket order is a limit order and the stock price doesn’t reach the limit price, the order is canceled.
Since your main order was a limit buy order of Rs 200. If the stock price does not reach Rs 200 throughout the day, then you won’t be able to buy the stock in the first place as the order will be canceled by your broker at the end of the trading day.
The reason being BO orders are for intraday only and you can’t carry the bracket orders over to the next day.
You can manage your risk and profits efficiently in trading using the BO order. However, some brokers like Zerodha don’t allow BO on their platforms. You can check out our Zerodha review article for a detailed analysis of the broker.
How to Place a BO Order
Step 1 – Login to your trading account with your brokerage firm. Like I am giving the example of Upstox.
Step 2 – Select and analyze the stock you want to trade, right-click on the stock and click on “Place order”.
You can go through our article How to read a candlestick chart to enhance your technical analysis skills.
Step 3 – Select “BO” or “OCO” from the order type dropdown menu.
Step 4 – Enter the desired quantity of shares and the desired price at which you want to execute the trade.
Step 5 – Set the stop loss and target price. Review the details of the order and click on “Buy.”
Your bracket order will be placed immediately with simultaneous target order and stop loss order.
Advantages of Using BO (Bracket Order)
- Reduced risk of loss: BO order helps you minimize their losses by specifying a stop-loss trigger price.
- Increased profitability: BO order enables you to maximize your profit potential by specifying a limited price.
- Ability to manage trades effectively: BO order helps you to manage your trades effectively by automating the buying and selling process. You can also check out our guide on how to pick stocks for intraday trading to step up your trading game.
Frequently Asked Questions
Q1. What is the difference between BO and normal order?
The main difference between BO and normal order is that BO combines a buy or sell order with a stop loss order and a limit order. A normal order, on the other hand, is a simple buy or sell order without any additional conditions.
Q2. What is the minimum amount required to place a BO order?
The minimum amount required to place a BO order depends on the stock price.
Q3. Can BO orders be canceled or modified?
Yes, you can cancel or modify a BO order at any time before it gets executed.
Q4. Are there any additional charges for placing a BO order?
No, you have to pay the regular brokerage charges only.
Conclusion
BO (Bracket Order) is an important tool for you to manage trades effectively and reduces the risk of loss while increasing profitability.
By understanding how BO works, you can take advantage of this powerful tool to reduce your trading loss.
