How Stock Traders Use a Bracketed Buy Order
A bracketed buy order is the use of three orders placed simultaneously to take a long position on a stock. The three components of a bracketed buy order include: (1) an initial long position (2) a limit sell order and (3) a stop market loss order. Each component is set at a price the investor selects when placing the orders as the investor has determined where they seek to lock in gains and protect against losses.
An example of a bracketed buy order might have an investor placing an initial buy order of 100 shares of a particular stock at $40 with a sell limit order of $45 and a sell stop order at $35. If the price climbs to $45 or falls to $35, the position is sold with an end result of the trader either meeting a pre-determined gain or suffering a limited loss.
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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.
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