What Is a Bracket Order? OCO Orders Explained
A bracket order is a three-part order that combines an entry order with a take profit and a stop loss. Once your entry fills, the profit target and stop loss activate as an OCO (one-cancels-other) pair: when one side fills, the other automatically cancels. This means your exits are handled for you, no matter which direction the market moves.
How Bracket Orders Work
Here is a simple example. You want to buy a stock at $100. You set a take profit at $105 and a stop loss at $97. When your buy order fills at $100, both exit orders go live. If the price hits $105, your profit target fills and the $97 stop loss cancels. If the price drops to $97, your stop fills and the $105 target cancels.
The entire process is automatic. You do not need to watch the screen or manually cancel the remaining order. This is why bracket orders are popular with day traders who manage multiple positions simultaneously.
Understanding OCO Orders
An OCO order is the mechanism that makes bracket orders work. It links two orders together so that filling one cancels the other. OCO orders do not have to be part of a bracket; you can use them independently.
For example, you might place an OCO with a limit sell at $110 and a stop sell at $95. Whichever price hits first triggers that order and kills the other. This is useful for swing trading setups where you want both an upside target and downside protection without babysitting the trade.
Benefits for Prop Firm Traders
Bracket orders are especially valuable for prop firm traders. Most funded accounts have strict drawdown limits, and forgetting to set a stop loss can end your account in minutes. By using bracket orders, your risk is defined the moment you enter the trade.
Many platforms like NinjaTrader, Rithmic, and Tradovate support bracket orders natively. Some let you set default bracket values so every trade automatically includes your preferred stop and target distances.
Setting Up Your Bracket Orders
Start by determining your risk-reward ratio. A common approach is a 1:2 ratio: risk $100 to make $200. Set your stop loss based on the technical level that invalidates your trade idea, then set your take profit at twice that distance.
Most platforms let you adjust bracket orders after entry. If the trade moves in your favor, you can trail your stop loss higher while keeping your profit target in place.
Key Takeaways
- Bracket orders combine entry, stop loss, and take profit in one package
- OCO means one order filling automatically cancels the other
- They remove emotion and ensure every trade has defined risk
- Most professional trading platforms support bracket orders
- Prop firm traders benefit from the automatic risk management
Frequently Asked Questions
Can I modify a bracket order after it is placed? Yes. Most platforms let you drag your stop loss and take profit levels on the chart or adjust them in the order panel after your entry fills.
Do all brokers support bracket orders? Not all. Basic apps like Robinhood do not offer bracket orders. Platforms geared toward active traders, such as NinjaTrader, Thinkorswim, and Tradovate, typically support them.
What happens if the market gaps past both my stop and target? In an extreme gap scenario, the order closer to the opening price will trigger first, canceling the other. Your fill price may differ from your intended level due to slippage.
Risk Disclaimer: Trading involves substantial risk of loss. Past performance is not indicative of future results. See our full risk disclaimer.