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Why has Zerodha stopped Bracket Orders (BO)?

Bracket Orders have been disabled on Kite since March 2020. This is mainly because of the issues Bracket orders create in times of increased volatility.

Firstly, a Bracket order (BO) is a type of order where you can enter a new position (intraday only) along with a target/exit and a stop-loss order. As soon as the main order is executed, the system will place two more orders (profit-taking and stop-loss). When one of the two orders (profit taking or stop loss) gets executed, the other order will get canceled automatically.

BO was popular with customers mainly for higher intraday leverages which were possible as every position had a mandatory stop-loss order.

The issue with BO is that when markets are volatile, sometimes both target and stop-loss orders get executed instantly. This could result in an additional open position, increasing the risk for both the client and the brokerage firm.

For example, assume you have placed a buy Bracket Order (BO) for 100 shares of Reliance at Rs. 2000. The target price is at 2005 and the stop loss is at 1995. Assume that due to a sudden movement the stock traded at Rs. 1995 and then immediately at Rs. 2005. 

In this case, 100 shares of Reliance will be sold at Rs. 2005 and 100 more shares at Rs. 1995. You will end up having an unintended short position of 100 shares in Reliance.

This as you would imagine is quite risky, especially if this happened towards the end of the market hours and positions were held overnight. Since these issues were happening quite frequently, we stopped Bracket orders.

Alternatives?

SEBI introduced intraday peak margin regulations in July 2020 that disallows brokerage firms from offering leverage more than the VaR+ELM with leverages reducing in a phased manner till Aug 2021. So the leverages offered across all our intraday products, Bracket orders, MIS or Cover Orders (CO) has to be the same. There can’t be any additional leverage given because of the mandatory stop-loss order. Hence you could just use MIS or CO and just get the same leverage as BO.

If you are looking for an order type where you can place both Stop-loss (SL) and target orders at the same time, do check out GTT orders. You can set the SL and target not just for intraday but also for overnight positions.