Order-Triggers-Two (OTT)

What Is an Order-Triggers-Two (OTT)?

An order-triggers-two (OTT) is a type of compound, contingent order that places a pair of secondary orders when a primary order is executed. An OTT is a type of order-sends-order (OSO), also known as an order-triggers-other (OTO). These order types involve setting a primary order (usually a limit order or stop order) that subsequently triggers one or more secondary orders (which are also usually limits or stops). In an OTT, exactly two secondary orders are triggered when the primary order is executed.

A common example of an OTT specification is a bracketed order. This type of order automatically creates a pre-specified upper and lower bound (i.e., the bracket) with which to exit the trade, either at a profit or a loss.

Key Takeaways

  • An order-triggers-two (OTT) condition automatically placed two secondary orders, contingent on the execution of a primary order.
  • OTT orders are a type of contingent order known as an order-sends-order (OSO) or one-triggers-other (OTO).
  • Bracketed orders are common examples of OTT contingencies that create take-profit and stop-loss levels once the primary trade is filled.
  • OTT orders can also be placed to automatically set buy orders at a pair of lower prices to buy the dips if the stock drops and a trader wishes to accumulate shares as a result.

Understanding OTT

Order-triggers-two (OTT) conditions are often used when traders want to set a band around an initial order without having to constantly monitor the position or the price of the security involved. These types of orders can therefore help a trader maintain a disciplined strategy and also prevents the trader from forgetting to close the position once desired levels (to the upside or downside) have been reached.

An OTT order will often be placed before the primary trade is executed, which also gives investors some flexibility to change and update the conditions as the market moves. A trader, for example, may decide that the secondary order levels should be raised or lowered based on changes in volatility, market outlook, or earnings forecasts.

Bracketed orders are a common type of OTT order that sets an exit level both above and below the primary order price. There are other variations on the OTT as well—for example, a buy order can trigger two additional buy limit orders at levels increasingly below the primary order price (say -2% and -5%) in order to engage in automatic dip-buying.

In an OTT order, if the primary order is canceled, the secondary orders will also be canceled. However, if only one or both secondary orders are canceled, the remaining orders may still remain in force. If the order is set up as a one-triggers-a-one-cancels-the-other (OTOCO) order, the second primary order will be automatically canceled once one is filled.

OTT Bracketed Orders

A bracketed order involves a primary opening trade (either a buy or a sell) that then triggers a limit order and stop order. In the case of a bracketed buy order, a sell limit order is placed higher than the primary order as a take-profit level, and the sell stop order, or stop-loss order, is priced below the primary order to minimize downside losses.

In the case of a bracketed sell order, the steps are placed in reverse. Here, an initial short sale (the primary order) triggers a limit order to buy at a lower level for profit, with a stop-loss to buy at a higher price. This type of OTT is especially useful for short sellers who are concerned about limiting their losses in the event of a short squeeze.

The difference in price level between the two secondary orders represents the potential profit and loss range on the bracketed trade.

Example of an OTT Order

As an example of an OTT order, let's consider a hypothetical bracketed buy order in XYZ stock, which is trading with a market price of $100 per share. Say the trader wants to buy the stock at its current price, but with a 10% take-profit (T/P) level, while also restricting potential losses to only 5%.

An OTT order can be placed with a primary order to buy 100 shares of XYZ for $100. Two secondary orders would then be placed as a result of that execution: a sell limit order at $110 and a stop-loss limit order at $95. If the stock later rises to $110, the trader would then cancel the stop-loss and take the 10% profit.

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