Advantages of Bracket Order Functionality
Traditional market traders and digital assets traders share the same vital strategy elements:
1. Strategy Management
– Decisively opening positions, with patience.
– Predefining a risk tolerance and reward.
2. Emotional Discipline
– No extended losses, premature profit without valid reasoning, or letting greed set in.
However, by default, traders of traditional markets have something in common which traders of digital assets do not: the ability to “set it and forget it.” Nearly all major brokerage platforms offer standard (yet vital) features such as bracket orders and trailing stops. This may sound radical for those without hands on experience trading stocks, futures, etc.
Every brokerage firm below (Google query “list of major brokers”) offers bracket order execution features (and trailing stops).
● Fidelity – Best for Investors.
● TD Ameritrade – Best for Traders.
● Charles Schwab – Best for Retirement.
● E*TRADE – Best for Options, Mobile.
● Interactive Brokers – Best for Professionals.
● Merrill Edge – Best Rewards Program.
● TradeStation – Best Platform Technology.
These features are standard because traders need (and deserve) the ability to maneuver the markets with agility. This includes day traders, short-term investors, and even mid-term investors.
Efficiency in your routine.
Let’s look at a hypothetical trader named Rebecca who works at a technology company during the day and trades part time. Rebecca’s routine is made possible by standard platform features:
* Runs a basket of weekly strategies. Majority of the time which she allocates to trading is spent on market analysis, outside of adjusting trades around planned market events and staying apprised of socioeconomic events which may occasionally require a premature exit or cancellation of strategies.
* After analyzing markets over weekends, she creates plans for the following week. She sets up several strategies across a variety of markets which have generally enough overnight liquidity.
* Her strategies have a moderate likelihood of coming into action. If she sets up ten strategies per week, maybe two or three of them result in open positions on average.
* Physically deploying a strategy takes 30 seconds to minutes.
* From a trade execution standpoint, she can accomplish all the above using bracket orders, and she also includes trailing stop-limit orders to certain strategies. Manual adjustments are necessary from time to time.
Now that we’ve established all these magically efficient tools exist, let us review a few basic examples of how bracket orders work. Keep in mind, there is a variety of terminology used (e.g., “conditional orders”) and related (or subcomponent) features which can be applied in various ways across different platforms (“order-cancel-order”). Simply put, certain terms may have slightly different meanings to different traders.
Rebecca’s Buy Strategy: Using Brackets.
Buy Limit order at the price of 100. Let’s refer to this Buy order as the “Parent” order. Parent order = opens a position.
IF the Parent order is filled, THEN there will automatically be two Sell exit “Child” orders (bracket orders) for profit and loss targets, above/below the market. Here are the details:
1. Parent Buy Limit was filled at price 100.
○ Automatic: Place Sell Limit order (profit Child) at 105
○ Automatic: Place Sell Stop order (loss Child) to trigger at 98
2. Now Rebecca has an open position from price 100, with 2 resting Sell exit Child orders for the profit and loss targets.
3. Because only one of these Child orders need to be filled to close her position, whichever Child is filled first will cause a cancellation of the opposite Child = the strategy is complete. For example, her profit Child (Sell Limit order @ 105) is filled, this means the Stop order at 98 will automatically be canceled.
The example above is very general because this type of functionality may be facilitated in a variety of ways throughout decentralized markets, and central Exchange trading environments which involve coordinated efforts with client-facing firms.
Brackets in the digital asset space.
Self-producing these types of features via API trading with Exchanges such as Coinbase Pro, Binance or Poloniex becomes an entirely different animal, because:
1. Non-leveraged digital asset Exchanges don’t offer these order features natively. To get this type of functionality, you’d need to build algorithmic trading software or find a reliable provider such as Bidglide.
2. When building algorithmic trading systems to produce these functionalities, creative code is needed for traders who wish to carry zero excess inventory while trading markets which they are not invested in otherwise. For example, your method is to maintain a balance of 4 preferable digital asset types and cross into less liquid markets when opportunities arise. It is not possible to self-produce bracket orders with simple cancellation methods because Exchanges require funds to be locked for two orders. We’ve created a workaround for this type of issue by developing algorithms which tactically maintain exit targets in a controlled and reliable fashion – in addition to offering the option to synthetically associate two native orders (for those with excess inventory).
3. While API-trading in traditional markets it is possible to send actual “bracket orders” to an Exchange, after which point, hypothetically you are in the clear assuming the algorithm will not modify the orders or submit new orders. When using custom software for API-trading with digital asset Exchanges you are not able to send bracket orders, which brings added sensitivity to network stability. On the upside, certain Exchanges such as Coinbase Pro provide data center information – which is of great use. Especially for traders / short term investors running strategies for noticeable periods of time we recommend using any reputable cloud computing service. If you have no cloud computing experience, there is nothing to it, we provide tips (without incentives).
1. Coinbase Pro FIX API order feed, WebSocket market data feed.
2. Binance WebSocket order feed, WebSocket market data feed.
3. Poloniex WebSocket beta order feed, WebSocket market data feed.