Bracket order is a function used by traders to automate risk management and reduce emotional involvement. When used right, it can bring quite a few profits.
Although handy, bracket orders are mainly found in the traditional trading industry and not so much in the cryptocurrency world.
Therefore, Phemex is striving to bring traditional finance experience and features to the crypto industry by offering the benefits of bracket orders inside their crypto derivatives exchange platform.
What is Phemex?
Phemex is a crypto derivative exchange founded by professional Wall Street traders and investors led by Jack Tao, a Morgan Stanley veteran.
The team decided to build a cryptocurrency platform that stands out from other platforms through emphasizing trustworthiness and customer support within the crypto industry. Hence, Phemex strives to keep a "User-Oriented" approach by listening to their users' needs and always implementing superior services and features, far more powerful than other exchanges'.
Just as Phemex was the first to offer zero-fee spot trading, now, once again, it is the first one to offer a bracket order function.
What is the Bracket Order Function?
The bracket order is a trading management tool that has the purpose of giving the user the ability to select in advance the value they want to profit by (commonly known as a 'Take Profit Order'), and the value they want to stop out by (commonly known as 'Stop Loss Order').
Basically, every time you want to make an order, you can set up a target profit and a target stop. The target profit is the upper limit, the price level at which you want to sell and make a profit. If the price of your asset moves against you, the target stop will help you get out of a possibly disastrous trade and mitigate your losses.
The take profit and stop loss instructions that come with a bracket order operate as an OCO (one cancels the other) order. This means that if you take profit limit is hit, the stop loss instruction will be immediately canceled. Likewise, if your stop loss is triggered, the take profit order will be canceled. This prevents any unexpected operations that may inadvertently increase or decrease your position in an undesired manner.
Most exchanges already offer the option to set stop loss and take profits, but what is truly remarkable about Phemex’s bracket order is its ability to apply to individual orders and not your entire position. Normally, there is no way to profit from small price movements using take profit orders without closing your entire position.
On every exchange, both a take profit and a stop loss order will automatically be the same size as your full position. Phemex's bracket order allows you to set these instructions for a specific amount of contracts while your primary long-term position can remain untouched.
Gaining Profits with Bracket Orders
Imagine you buy 100 BTC/USD contracts when the price is at $10,000. Your primary strategy is to either double your money or lose a maximum of 50%.
This means that you can set a take profit instruction at $20,000 and a stop loss instruction at $5,000. If the price of BTC reaches either of those targets, the take profit or stop loss order will close your entire position. However, while you wait for the price to hopefully double, there will be multiple fluctuations or ups and downs.
A bracket order is designed to let you take advantage of these smaller price movements without affecting your long-term position. For example, let's imagine that the price of BTC is at $12,000. You would have already made a profit, but this is not anywhere near your target of $20,000, so you do not wish to close your main position yet.
You also predict that the price of BTC may drop by $100 before bouncing back up. At this point, you could set a bracket order for 10 BTC/USD contracts taking a short position. This order's take profit is at $11,900 and the stop loss is $12,001.
If your prediction was correct, you could make a small profit even when the price is moving against your primary long-term position. If your prediction was incorrect, your short-distance stop loss ensures a very minimal loss. In any case, the bracket order allows you to continue to speculate and to profit from Bitcoin’s smaller price movements while maintaining an unaffected primary long-term position.
Now that Phemex implemented this functionality, you can easily make a profit from smaller movements without affecting your long-term position. However, bracket orders do not exempt you from coming up with a sound trading strategy.
Therefore, try understanding first what the feel of the market is and set up your targets realistically. Figuring out when to get in and out of a trade can make the difference between profit and loss.