A:

Once you've identified a security that you want to purchase, you need to determine a price at which you want to sell if the price heads in an adverse direction and a price at which you want to take profits when the price moves in your favor. In many cases, this data is relayed to the broker using three separate orders.

First, you will buy a security using either a market or a limit order. Then, you will enter a stop-loss order, which tells your broker that you do not wish to hold the asset when the price moves beyond a certain level. If you have a target price in mind, you will then enter another order telling your broker when you wish to take your profits. That's a lot of orders! Many brokers have started using a special type of order that simplifies this process by allowing the trader to enter all the data contained in the above orders using only one transaction. This order is generally known as a bracket order, but some brokers may use different terminology.

A bracket order can be found in one of the following formats:

A bracketed buy order enables you to attach a stop-loss below the entry price, and a sell limit order above the entry at the price where you wish to take profits. This is the type of order you would use if you found yourself in a situation where you wanted to buy a stock at $30, sell it when it reached $35, but didn't wish to hold the stock if it fell below $27.

A bracketed sell order allows you to attach a stop-loss above the entry of a short position and a limit order below the entry price where you wish to take profits. If you believed that the price of the $30 stock mentioned above was going to go down, you would attach a bracketed sell order to protect your position.

To learn more about different types of orders, see The Basics of Order Entry.

RELATED FAQS
  1. Why can't I enter two sell orders on the same stock?

    To answer this question, let's look at a few different situations. You bought a stock for $10 but want to be able to protect ... Read Answer >>
  2. How do I place an order to buy or sell shares?

    Read a brief overview of how to open a brokerage account, how to buy and sell stock, and the different kinds of trade orders ... Read Answer >>
  3. How do I place a limit order online?

    Learn how a limit order is placed, the types of stocks it is most useful for and the specifications placed with it to suit ... Read Answer >>
  4. What's the difference between a stop and a limit order?

    A limit order is an order that sets the maximum or minimum at which you are willing to buy or sell a particular stock. With ... Read Answer >>
  5. What is the difference between a buy limit and a sell stop order?

    Understand the differences between the two order types, a buy limit order and a sell stop order, and the purposes each one ... Read Answer >>
Related Articles
  1. Investing

    The Basics of Trading a Stock: Know Your Orders

    Taking control of your portfolio means knowing what orders to use when buying or selling stocks.
  2. Investing

    Making The Trade: Understand Order Types

    Buying and selling stock can be a lot like buying or selling a car. Traders should use and understand tools such as market orders, limit orders, day orders, and good-'til-canceled orders to ensure ...
  3. Investing

    Explaining Market Orders

    A market order is the most common order used to purchase a financial security.
RELATED TERMS
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches ...
  2. Order

    An investor's instructions to a broker or brokerage firm to purchase ...
  3. Market-With-Protection Order

    A type of market order that is canceled and re-submitted as a ...
  4. Limit Order

    An order placed with a brokerage to buy or sell a set number ...
  5. Scale Order

    A type of order that comprises several limit orders at incrementally ...
  6. Immediate Or Cancel Order - IOC

    An order to buy or sell a security that if not immediately filled, ...
Hot Definitions
  1. Tender Offer

    An offer to purchase some or all of shareholders' shares in a corporation. The price offered is usually at a premium to the ...
  2. Ponzi Scheme

    A fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns ...
  3. Dow Jones Industrial Average - DJIA

    The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange ...
  4. Revolving Credit

    A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is ...
  5. Marginal Utility

    The additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important ...
  6. Contango

    A situation where the futures price of a commodity is above the expected future spot price. Contango refers to a situation ...
Trading Center