What is a 'Bracketed Buy Order'

Bracketed buy order refers to a buy order that has a sell limit order and a sell stop order attached. The sell limit order gets priced above the buy order and the sell stop order, or stop loss order, gets priced below the buy order. These three-component orders are set at a price determined by the investor, typically when the order is entered. This type of order allows investors to lock in profits with an upside movement and prevents a downside loss, without having to monitor the position continually.

BREAKING DOWN 'Bracketed Buy Order'

For an example of a bracketed buy order, suppose that an investor places a buy order for 100 shares of ABC at $50, along with a sell limit order at $55 and a sell stop order at $45. If the price moves up to $55 or down to $45, the position is sold. The trader either makes a gain of $5 with the sell limit or restrains the loss at $5 with the stop loss order.

It is important to note that, if the trader places the stop loss order at $45, there is no guarantee of execution at that price. This is because, once triggered, the stop loss turns into a market order and sells at the current market price after triggering. If the stock gaps down to $40, for example, the stop loss would be triggered and the investor’s shares would sell for around $40.

Investors may, however, benefit if the stock price gaps above their sell limit order. For instance, if ABC released favorable earnings after the market close, and the stock opened at $65 the following day, the investor would receive a fill close to that price, even though their sell limit order was $55.

Advantages of a Bracketed Buy Order

  • Flexibility: A bracketed buy order can be set before or after a trade gets executed, which gives investors flexibility. For example, it is an ideal order type for investors who have analyzed a stock and determined where they want to place their stop loss and sell limit orders before they execute the trade. Alternatively, investors could add a bracketed order to their existing open position if they are expecting volatility ahead of a major company announcement.                                                                                                                                       
  • Discipline: Investors may find it easier to follow their trading plans by using a bracketed buy order. Once the order gets placed, investors don’t have to take any further action and can simply wait for their stop loss or sell limit order to execute. A bracketed buy order can also be easily programmed into automated trading algorithms.
RELATED TERMS
  1. Order

    An order is an investor's instructions to a broker or brokerage ...
  2. Box-Top Order

    A box-top order is an order to buy or sell the best market price. ...
  3. Gather In The Stops

    Gather in the stops is a trading strategy of driving down a stock's ...
  4. Open Order

    An open order is an order to buy or sell a security that remains ...
  5. Conditional Order

    A conditional order is an order that includes one or more specified ...
  6. Stop-Limit Order

    A stop-limit order is a conditional trade over a set timeframe ...
Related Articles
  1. Investing

    Understanding Market Orders And Limit Orders

    A market order executes a transaction as quickly as possible at the present price. Immediacy is the main concern. A limit order is executed at or below a purchase or sale price. Price is the ...
  2. Investing

    Stop Loss Order Strategy

    A stop loss order is an order placed with a broker to sell a stock immediately if it drops to a certain price. It's a common way for investors to protect themselves from the possibility of a ...
  3. Investing

    Narrow Your Range With Stop-Limit Orders

    With stop-limit orders, buyers protect themselves from prices too high for their tastes.
  4. Trading

    How To Place Orders With A Forex Broker

    Learn how to set each type of stop and limit when trading currencies.
RELATED FAQS
  1. What is the difference between a buy limit and a stop order?

    Learn the difference between buy limit orders and stop orders, including stop loss orders, and understand the risks of the ... Read Answer >>
  2. 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 >>
  3. The difference between a market order and limit order

    Market orders execute a trade to buy or sell immediately at the best available price. A limit order only trades when the ... Read Answer >>
  4. What are the rules for placing stop and limit orders in forex?

    The high amounts of leverage commonly found in the forex market can offer investors the potential to make big gains, but ... Read Answer >>
Trading Center