How Stock Traders Use a Bracketed Sell Order

By Stock Research Pro • January 23rd, 2010

A bracketed sell order is a strategy of placing three simultaneous orders to take a short position on a particular security. The three components of a bracketed sell order include: (1) an initial short position (2) a buy stop order and (3) a buy limit order. Under this strategy, the investor seeks downside protection while potentially locking in a profit without having to continuously monitor stock price changes.

As an example, an investor starts by taking a short position on a particular stock and then enters a sell order at $20 followed by a buy order at $25. Depending on the direction the stock price takes, the investor will see a profit of $5 or, at worst, a loss of $5. Many investors utilize a bracketed sell order strategy to minimize the uncertainty associated with their trading results and protect against an unexpected short squeeze.


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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