An order that is being “bracketed” by two side orders - which when activated, lock in profits or reduce losses.
A bracket order is a compound of different order types, consisting of two stages. In the first stage, the order purchases an asset at current trading prices. In the second stage, the bracket order goes into standby, waiting for the market price to rise or fall until it reaches one of the predefined trigger prices.
Before deployment, the trader has placed a low price under which they would sell the asset to limit losses, and a higher price at which they would sell to lock in profits - these portions independently work as a stop-loss order and a take profit order, respectively. Once either a low or high price has been reached, the assets are sold. The stop-loss order/take profit order second stage is exclusionary, which means that only one or the other is triggered and executed, whichever was reached first, regardless of volatility.
How it is used
Milan has been looking to buy $1000 ADA. But given that he needs to pay some large bills soon, he has to cap the maximum possible loss; as well as take profits when they can be taken. He places a bracket order, which purchases ADA while simultaneously placing two sell orders: one for if the price drops by 10% and one for if the price increases by 20%. Milan is ensuring, without having to monitor his orders in the market, that he either locks in a 20% profit or minimizes a potentially bad market downturn on his investment, either way, he will have enough to pay his bills.
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