Definition of Bracket Order
What is the definition of a "bracket order"? What does the term "bracket order" mean in the world of investing?
A "bracket order" is a type of order in which an open order is "bracketed" by a limit sell (or limit buy, in the case of a short position) and limit sell stop order.
For instance - let's say that you decide to buy 100 shares of MSFT at $25.
You decide that you want to sell your 100 shares if the stock hits $26, and you also want to limit your potential loss to $100 as well. This would be the perfect situation for a "bracket order".
In this case, your bracket order would look like this:
Limit Sell 100 shares of MSFT @ $26
Limit Stop Sell 100 shares of MSFT $24
So, if MSFT hits $26 per share, your limit order will turn into a market order and you will be filled at the best available price.
On the other hand, if MSFT drops and hits $24, your limit stop sell order will turn into a market order, and your shares will be sold at the best available price.
On the other hand, a bracket order on a short position would look like this:
Short 100 shares of MSFT @ $25
Limit Buy Order 100 shares of MSFT @ $24
Limit Stop Buy Order 100 shares of MSFT @ $26
In this case, you would automatically stop out for a profit if MSFT dipped down to $24, while you would automatically stop out for a loss if it hit $26.
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