Bracket Order
A bracket order is a compound order type that combines an entry order with an automatic target profit order and a stop-loss order, designed to lock in gains and limit losses without requiring manual intervention.
The bracket order was one of the most risk-disciplined tools available to active intraday traders on Indian broking platforms. It worked by simultaneously placing three linked orders: the primary order to initiate the position at a specified price, a target order above the entry price (for a long position) to book profits, and a stop-loss order below the entry price to limit downside. Once the entry was filled, both the target and stop-loss orders were live, and when one of them was triggered, the other was automatically cancelled — ensuring the position was closed exactly once.
Discount brokers like Zerodha popularised the bracket order for retail intraday traders as part of their platform design philosophy emphasising risk management. The mechanics reduced the emotional decision-making that plagued many retail traders: instead of deciding in real time whether to hold or exit a position that was moving against them, the bracket order forced a pre-commitment to both the upside and downside exit levels before the trade was entered. Research on trading behaviour consistently found that traders who predetermined exits had better outcomes than those who made exit decisions reactively.
Bracket orders on Indian exchanges were implemented as intraday products — they were mandatory square-off positions, meaning they could not be converted to delivery positions. Any open bracket order position not triggered by either the target or stop-loss leg before 3:20 PM was subject to automatic square-off by the broker. This intraday constraint was by design, as the margin benefit associated with bracket orders — reduced margin requirements due to the embedded stop-loss — was only available because the risk was capped.
The margin advantage of bracket orders was significant for capital-efficient trading. Since the maximum loss on a bracket order position was mathematically bounded by the distance between the entry price and the stop-loss level, exchanges and brokers allowed higher leverage relative to normal intraday positions. Traders could therefore take larger notional positions for the same margin outlay, which amplified both gains and losses within the defined range.
SEBI's review of margin frameworks in 2020–2021, which significantly tightened intraday margin norms across all product types, impacted the leverage available on bracket orders. The regulator's intent was to reduce the systemic risk of leveraged retail positions, and bracket orders were brought within the unified peak margin monitoring framework.