The Benefit of Bracket Orders

Phemex is now the first crypto derivatives exchange to offer a “Bracket Order”. When using this order type, each order will be accompanied by an OCO (One Cancels the Other); for a stop and a take profit. The trader will select the value they want to profit by, as well as the value they are willing to be stopped out in advance. With this, the trader can automate and streamline the process of taking all the important steps needed before a trade is placed. The OCO order type ensures that once either a target or a stop is hit, the other remaining execution type is canceled so that no orders that may inadvertently open a new trade are left open.

This type of order setup is not only beneficial because it takes the friction out of trade execution, but also because it puts traders in an extremely ideal position to try to help with market making and earning limit rebates. During periods of compression, ranging, and consolidating price action; traders can envelop price with multiple bracket orders to scalp small movements and collect rebates.

This order type also makes it quite easy to input trades based on the trader’s ideal and desired return profile. A scalper that is looking for a 2:1 trade is going to find it very easy to enter this in when inputting the stop and take profit.

In a tight range? Fire away a bunch of bracket orders with 20 tick take profits and 10 tick stops.

Feel like trying your hand at market-making? Open orders to sell and orders to buy right around the spread with just a few ticks to take profits on each side.

Overall, the bracket order template is something that can help traders not only be more effective and efficient, but also make more money in the long run.

How To Use This Feature Effectively

For this example, we will go over how one might trade a period of choppy price action that looks to be setting up for a ranging environment. Something that looks a lot like the image below.

The price is stuck within and around a 60$ range. This is a perfect opportunity to use the bracket order feature.

First, make sure the ‘Bracket-Order’ is selected. This is located under the limit order template as the default setting is going to be limit order execution. Remember, the purpose of this order type is to be able to get precise passive fills and a maker rebate compensation.

Next, we are going to choose our bracket order take-profit (A), stop size (C), as well as stop execution type (B). This is done by tick size, which on Phemex is .50 cents USD for Bitcoin. We are also going to be choosing our stop execution type as well. As a reminder, with stops, a market stop is the only stop that will guarantee execution. If you are trying to market make in a range, and price begins to trend, being taken out of that trade is a priority.

After finalizing the details of our bracket, we are now going to place an order in a similar way to how we would normally do so by choosing the price and contract amount per trade. Except now, we have the added benefit of being able to place both buy and sell orders that are open at the same time and that do not conflict with each other.

In this case, we are going to choose limit entries that “bracket” the current range. In the image below we have staggered orders around the range. You can choose to stagger orders or place multiple orders at the same price level.

Note that each one of these orders is a separate order and will be organized as such in the “active orders” tab.

Each of our trades, when triggered, will not affect the other open bracket positions. This is the perfect order type to use when the price is choppy and moving sideways during low volatility periods.

If there is no conviction in direction, take advantage of one of the added benefits of being a market maker by remaining directionally neutral and collecting a maker rebate!

By Ryan Scott (@CanteringClark)


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