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What is a Bracket Order?

A Bracket Order (BO) is represented by a Limit Order (or primary order [PO]) that comes attached with two exits: a Take Profit (TP) limit order plus a Stop Loss (SL) limit/market order .

(Learn How to place stops and define trade invalidation on Phemex Academy)

The TP and SL orders are initially inactive until the PO becomes fully filled. Partially filled POs will not activate their associated TP or SL orders.

Once the PO is fully filled, the TP limit order will immediately be sent out into the order book at a limit price which is specified by an offset of an average execution price of the PO, while the SL order, a conditional order, will be active. Please note that we currently allow a maximum of +/- 2000 ticks offsets.

If the TP order gets partially filled, the quantity of the SL order will be reduced accordingly. If TP order becomes fully filled, the SL will be cancelled.

The SL order can only be triggered by the LastPrice. Once the SL order is triggered, the TP order will first be canceled and only then will the SL order be sent out. Once the SL is triggered, a TP order will never be sent again, regardless of whether the SL order is fully filled or not. In short, this pair of  TP and SL orders behave like a One Cancels the Other (OCO) order.

For the SL limit order, the limit price can be different from trigger price. However, both the trigger price and the limit price must be worse than the original PO’s price. Once again, please note that if the SL triggers (even if it does not fill), the TP order will be immediately cancelled and never sent again, even if the price begins to move back in your favor.

Both stop market and stop limit orders will be restricted by your position’s bankruptcy price for now (not liquidation price). Setting a stop market order is more likely to get fully filled immediately, however the execution price cannot be guaranteed and you could experience more losses. A stop limit order may not get filled immediately, but the set execution price is guaranteed.

For now, you can place a maximum of 20 bracket orders per symbol.

Bracket Order VS Stop Loss & Take Profit

To understand how a bracket order is different than a regular stop loss or take profit order, let’s look at some examples.

Example 1:

You open a BTCUSD long position with a size of 5,000 contracts when the price is at $10,000. You predict that Bitcoin’s price will continue to rise slightly above $20,000. To ensure profits you set up a take profit instruction that triggers a market order when the price reaches $20,000. In case you are wrong, you set a stop loss instruction that triggers a market order if the price drops to $5,000. In either case, both the take profit and the stop loss will close out your entire position of 5,000 contracts.

Example 2:

Let’s assume you still hold the position described in Example 1. You’ve identified a short-term pattern in bitcoin’s price movements that you wish to profit from without having to close out your entire position. This is where a bracket order comes in. Unlike a regular take profit or stop loss order, the bracket order allows you to set these exit instructions strictly for this isolated order without affecting your long-term position described in Example 1. For example, if in the short run you predict that the price of bitcoin will drop from $10,000 to $9,990, before bouncing back to 10,000 and above, you could set a short bracket order for a smaller size such as 500 contracts. This primary limit order would be for $9,999. The take profit would be set 18 ticks away at the price of $9,990 while the stop loss would be at $10,000.

This means that if the price drops by 1 dollar, your primary order would likely fill. If it fills, and the price continues to drop down to $9,990, your take profit would close your 500 contracts at a profit. If your prediction was wrong and the price begins to move above $10,000, your stop loss would help mitigate your losses.

Example 3:

The previous example shows you how you can use a bracket order to profit from smaller short-term price movements even when these are against your long-term position. However, Phemex actually allows you to set multiple bracket orders in any direction.

Let’s assume that the scenario presented in Example 2 is correct. You could also set a bracket order for a long position at $9,991. The take profit would be at $10,000 and the stop loss at $9,989.

In summary, setting up this bracket order along with the one detailed in Example 2 will help you maximize profits all while leaving your long-term position unaffected. If the price does in fact drop from $10,000 to $9,990 and then bounces back to $10,000, your two bracket orders would help you profit in both directions. If at any point you were incorrect and prices moved against your predictions, the stop loss instructions would have mitigated your losses.

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