Bracket Orders and cover orders are both very similar, which we will explore in this post. Along with their procedural similarity however, they also inherently stem out from a single idea of reducing risk in an ever volatile market. So, here we’ll also be talking of Stock Brokers with Bracket Order and Cover Order.
What is a Bracket Order?
To start with, a bracket order is just a cover order with additional steps.
Let’s start simpler, an order is when you enter the desired quantity of purchase or sell at the desired price, which sort of creates a ticket in you broker’s system. When someone, or several someone match the descriptions on your ticket, i.e. your desired quantity and price, then the order goes through and you get/sell your asset.
What is a Target Price & Stop Loss?
A target/exit price is when along with the order, in a long position, you enter an upper limit to the transaction, meaning to say that when the stock’s price moves up to this particular point, the broker would automatically sell the shares by creating an order and book the profit. A stop loss is similar, but instead of an upper limit, it provides a lower limit to the transaction, which is to say it helps to take effective action to avoid cumulative losses.
Now imagine all of this on a number line. You will find that the lowest price point denotes the stop loss, somewhere in the middle is the actual purchase price of the asset, and at the farther end of the number line is the target or exit price. All these together form a bracket order, if you visualise, on the number line, all these form sort of a bracket to denote this is where the transaction is supposed to occur, or the stock is to be held. If the stock price moves out of this bracket, on the number line, be it through upper or lower limit, the immediate call to action is selling the stock.
Bracket orders in India are primarily used for intraday transactions, and are usually automatically squared off by the broker if not squared off by the end of the day. Also, if any one of the orders get triggered later, be it stop loss or target, the other automatically gets cancelled.
Another highlighting fact of bracket orders in India particularly is the fact that they can be only used for equity share and currency transactions, and that too on the stocks listed on NSE. No bracket orders are allowed for MCX commodities. In terms of margin requirement, it is usually half of MIS margin requirements because of sort of reduced risk, or capped risk.
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What is a Cover Order?
A cover order is much more simpler than a bracket order, which is to say a cover order can simply be understood by contrasting it with a bracket order. In bracket order, you have 3 price points, in ascending order, the stop loss, the entry price i.e. the price you entered the position in and the target price. In cover orders, you only have two price points, the entry price and the stop loss.
Because it has a reduced risk profile as well, the margin provided for cover orders is also pretty high, sometimes even 20 times the MIS margin. They are also automatically squared off by 3:20 PM if not triggered.
Like a bracket order has a compulsory stop loss and target, the cover order only has a compulsory stop loss, which is to say that the cover order has no upper limit for the profit. Which is great! You know there’s a ‘however’ coming.
Bracket Orders vs. Cover Orders
However, when you think of the entire mechanism, you will realise that this mechanism of knowing when to book your profits and loss is a much disciplined process. It relies on a very deep understanding of the stock market movements, and also understanding standard deviations and means. Let me elaborate.
A mean or an average price for any type of stock is sort of its current base price, which is to say the stock might move up and down from there, standard deviation, but over a period of time will return to its mean. This mean is usually the current intrinsic value of a company.
So, when you enter in transaction with an upper limit as well, the idea is that you know that the upwards movement of the standard deviation will die and the price will fall back to the mean. When using a BO, you can maximise your profits with a bracket order. However, if you’re unsure about the movements, a cover order might be best for you, along with a very vigilant market watch.
Brokers with Bracket Order
Coming on to our second part of discussion, let’s highlight some of the stock brokers with Bracket Order and Cover Order. Here are some of the brokers, along with their brokerages who provide bracket and cover orders:
- HDFC Securities
- Kotak Securities
- Motilal Oswal
- IIFL Securities
- Alice Blue
Bracket Order Broker List
|S.No.||Broker||Brokerage (Equity Intraday)||Type|
|1.||Zerodha||Rs. 20 per order or 0.03%, whichever is lower||Discount Broker|
|2.||Upstox||Rs. 20 per order or 0.05%, whichever is lower||Discount Broker|
|3.||HDFC Securities||0.05%||Full-Service Broker|
|4.||Kotak Securities||0.049%||Full-Service Broker|
|6.||Motilal Oswal||0.05%||Full-Service Broker|
|7.||IIFL Securities||0.05%||Full-Service Broker|
|8.||Alice Blue||Rs. 20 per order or 0.03%, whichever is lower||Discount Broker|
|9.||5Paisa||Rs. 20 per executed order||Discount Broker|
|10.||TradeSmart||Rs. 15 per executed order||Discount Broker|
And, yes if we missed an important stock broker name with the Bracket Order and Cover Order, do let us know. We’ll be happy to add it here.
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Well, now you know the different stock brokers with bracket order. Comment below if you have any thoughts on the topic, or you want to suggest topics, or if you’d like to incite a discussion. You can also simply say Hi, that spreads smiles as well.