Execute a Bracket Order as SL-M

As you know Bracket Orders are available in Limit or SL order type, both have their own purpose and use case. SL order types can be used to enter at breakout but the drawback is, it may or may not executed depends on how fast the stock price has moved. So how we make sure the bracket order is executed/fulfilled at breakout?

How SL (Limit) order type works?
We will provide a trigger price and a limit price in SL order type. Once the order is placed, it will sit in a separate book maintained by exchanges, this SL orders won’t show up in exchange’s normal order book.

Only Normal Limit and Market orders will show up in exchange’s normal order book.

Once the last traded price (LTP) reaches or touches or crosses the trigger price, the SL order type is released to exchange’s normal order book as  normal Limit Order with the Limit price you mentioned.

Once the SL order becomes a normal limit order, all the rules applicable for a Limit order will apply i.e. your order will be executed only at the best price i.e. if it is a Buy order then it should buy at or below the limit price you quoted and vice versa for sell. If no best price is available, your order will be open till market hours and cancelled by exchange at end of day.

Example:
Suppose you have placed a Buy limit order with limit price as 125.60. Your buy order will be executed only when the price of the stock comes at or below 125.60. If the price hasn’t come at or below 125.60 throughout market hours then, your order will be cancelled by exchange at end of day.

A Simple way to understand Limit Orders:
People always want to Buy at cheaper price and Sell at higher price than the market price.

On other hand, with Market orders, you just want to Buy or Sell at any available price let it be cheaper or higher or whatever.

Let’s decode SL Order type:
Assumptions
Stock Name : ‘ABC’
Current Price(LTP) : 450.00

Now you want to buy the ‘ABC’ stock only when its price crosses 455.00 i.e it should move by Rs 5.00 from the current price (LTP 450.00).

What will happen if you place a normal Buy Limit order with 455.00 as limit price (Current Price is 450.00)?
You are telling the exchange that you are willing to pay a maximum of Rs 455.00 to buy the ‘ABC’ stock. As the current price is lesser than your maximum quoted price, exchange is happy to fulfill your deal as you are going to get the ‘ABC’ stock much lower than what you willing to pay.(Your quoted price 455.00 and current price 450.00. Rs 5.00 lesser than your quote)

So if you place a Buy limit order with price higher than the current market price, it will be executed immediately. For Sell, just reverse the logic.

So how you will Buy the stock only when its price crosses 455.00 (current price 450.00)?
Here comes the another order type SL i.e. Stop-loss Limit order.

In this order type we will provide a trigger price and a limit price. Your SL order will be triggered only when the price of the stock crosses or touches or reaches the trigger price mentioned, till then these orders will silently sit in a corner at exchange. Once the stock prices reaches your trigger price, these orders are released to normal market as normal limit order with limit price mentioned.

For the above example:
You can Place a SL order with trigger price 455.00 and limit price as anything above or equal to trigger price i.e. >= 455.00.

The more thin gap between your trigger and limit price, the lesser chance for your order to execute/fulfill.

Let’s explain bit more with example:
Suppose you placed SL order with trigger price as 455.00 and limit price as 455.05 (0.05 difference). At some point during market hours, stock ‘ABC’ price suddenly plunges and goes to 457.00.

Now the current market price is 457.00.

As the current market price is crossed your trigger price(455.00), exchange will release your SL order to normal market as Limit order with price as 455.05.

Now your SL order is no more a stoploss order (trigger is a one time event), it is a limit order with price as 455.05 and will be shown in exchange order book.

Since the buy order will be executed only at the best price i.e. you want to buy cheaper than your quoted price, but the current market price is 457.00 i.e higher than your quoted price, your order will be open and will be executed only if the price comes down from 457.00 and goes below 455.05.

The above can be useful if you want to control your execution price i.e you want buy at around 455.00, but not willing to pay more and you don’t bother if the price is moved away and your order is not executed.

The other case, what if you just want to buy at whatever available price after the stock ‘ABC’ price touches your trigger price i.e. 455.00?

The trick is just maintain a long gap between trigger price and limit price(up-to circuit limit). Let’s place another SL order with trigger price as 455.00 and limit price as 459.00 (4.00 difference). Just apply the same case above. At some point during market hours, stock ‘ABC’ price suddenly plunges and goes to 457.00.

Now the current market price is 457.00.

As the current market price is crossed your trigger price(455.00), exchange will release your SL order to normal market as Limit order with price as 459.00. Since you are willing to pay a maximum of Rs 459.00 to buy the stock, but the current market price is 457.00, exchange is happy to fulfill your deal as you are going to get the ‘ABC’ stock much lower than what you willing to pay (Rs 459.00).

For SL sell, just reverse the logic.

It’s up to you, how you are going to use the SL order type.
Both cases have Pros and cons, you should choose the one that best suits your trading system.

Happy SL Trading…!

ChokS

ChokS

.Net Programmer. AFL Coder. Author of KiteDotNet & KiteXL.

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