Several weeks ago, we posted a blog about how to simultaneously set up a target and stop price when executing an initial stock order. Good news – this process is now more seamless thanks to the bracketed orders feature we recently introduced.
What’s a Bracketed Order?
Less complicated than it sounds, a bracketed order simply “brackets” two prices (one stop price, one limit price) around an initial order. That way you can choose the levels at which you want to exit a winning or a losing trade. And when one order is activated, the other will automatically be cancelled.
Examples
For a buy order, an investor could buy XYZ stock at $50, set a sell-to-close stop order at $40 (theoretically limiting losses to a maximum of $10) and a sell-to-close limit order of $100 (submitting an exit order if and when the stock doubles in value).
On the flip side, for a sell order, an investor could sell XYZ for $50, set a buy-to-close stop order at $55 (forcing an exit of the trade at a $5 loss) and a buy-to-close limit order of $40 (prompting an exit of the trade at a $10 gain).
How Do I Do It?
From the ever-present quote line at the top of the platform, you can click on either the bid or ask price and select the “Sell [XYZ] Stock with OCO Bracket” or “Buy [XYZ] Stock with OCO Bracket” option, respectively.
After selecting one of these options (for the sake of example, let’s go with the “Buy” bracket), the ticket will auto-populate with your default quantities. The first tab – (A) Order 1 – will be a traditional buy order. From here you can adjust your price type, price, and duration.
Typically, bracketed orders have a duration of good-til-cancelled (GTC), unless the trader expects his stop or target levels to be hit in very quick fashion. Note that “Day” is the default choice under the duration drop-down menu so “GTC” would need to be selected by the user. (Regardless, all three orders will need to be set to the same duration). You’ll also notice that the order summary portion of the ticket is already full of information – you just need to customize it.
The (B) Order 2 tab will already be filled out as a sell limit order, with a pre-filled price of one dollar more than the stock purchase price. Set this price to whatever you wish and adjust the duration in accordance with the first order.
The (C) Order 3 tab will also be filled out, as a sell stop order with a pre-filled price of one dollar less than the stock purchase price. Again, you may choose to adjust this price and the duration. Again, all three durations must be the same.
Hit preview. Depending on where you set your stop and limit prices, you may see an error message in the “Order Messages” field indicating that Orders 2 and 3 are away from market (this is by design).
Be sure to confirm your order summary before executing. It should read similar to this:
Order Summary
- Buy 100 NFLX Stock, at a Limit price of $290.00, Duration: GTC
- IF that order executes in full THEN send the following two orders. If one executes in any part, then attempt to cancel the remaining order (while continuing to work the first order)
- Sell 100 NFLX Stock, at a Limit price of $340.00, Duration: GTC
- Sell 100 NFLX Stock, at a Stop price of $270.00, Duration: GTC
So basically, this saves you a couple of steps and a bit of manipulation. We hope it makes your experience trading on OptionsHouse that much more efficient and easy to manage. We’d love for you to let us know what you think after you try out this new functionality!
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Tags: Online Options Broker, Online Trading Platform, OptionsHouse
Is there any way to implement a trailing bracket order?
Carl, technically you can create a trailing stop on the stop-loss order and a trailing stop on the limit order, though these conditions wouldn’t be conducive to an upside target. Alternatively, if you opt to simultaneously set up a trailing stop to the downside and a target exit price to the upside, you can do so by setting a trailing stop on Order 2 (with a market order) and a limit order on Order 3. (Note: the platform does not allow multiple market orders in an OCO).
Please carefully review your trade previews when dealing with multiple variables. In the scenario described above, the order summary would read as follows, where the first line is the stock buy, the second line is a trailing stop order, and the third is a limit order at a preset upside target (which will not automatically adjust higher).
We are currently working on building triggers for each leg of advanced orders, which will allow for increased functionality down the road.
Order Summary:
-Buy 100 XYZ Stock, at a Limit price of $132.00, Duration: Day
-IF that order executes in full THEN send the following two orders. If one executes in any part, then attempt to cancel the remaining order (while continuing to work the first order)
-Sell 100 XYZ Stock, at a Limit price of $145.00, Duration: Day
-IF: XYZ Stock, Last price is Down $5.00, Duration: Day THEN
-Sell 100 XYZ Stock, at the Market price, Duration: Day
That’s a nice feature.
GREAT ADDITION! Just what I was waiting for! Thanks a million!