Conditional Orders: Algo for Discretionary Traders
Conditional Orders, such as Bracket Order or 2-Leg Orders, allow traders to to buy/sell in the market based on predefined conditions. Indian exchanges consider conditional orders as algo trading facility, because they are generally generated by a broker’s server. These are very helpful tools for discretionary traders (traders who do not take buy/sell decisions from automated strategy).
These are very helpful for Investors because it let them better manage their trading plan and share market activity. They take comfort in the fact that their stocks portfolio is being constantly monitored by broker’s server for executing a conditional order.
Active discretionary traders can use conditional orders to gain access to a highly sophisticated market tracking and order placement system. They also offer a range of conditions suited to diverse requirements of traders.
Conditional orders can be categorized as Basic, Intermediate or Advanced. In each category, the market is monitored by brokers server to adjust the entry/exit conditions.
Example: Bracket Order provided by Sharekhan’s Trade Tiger
Suppose you decide to buy Nifty futures when it breaks above the high of 8500 with Rs. 50 as target and Rs. 30 as stop loss. The IBT will provide you a single window to quickly and conveniently punch all 3 orders- entry, SL and Tgt. The system will automatically place SL/Tgt orders once stock has been bought. Moreover, the system will automatically cancel the SL order if Tgt is reached or vice-versa
Another example for using in illiquid stocks is: If ABC is trading above Rs. 400.00 and more than 20,000 shares have been traded since morning, buy me 200 shares at a price no more than 403.00
Another example is emulating the Good-till-cancel order in NSE
The intermediate fulfils basic conditions and provided additional like specifying trailing mechanism or order delay feature.
Example: Bracket Order provided by Omnesys through Nest Trader. It allows a trailing stop loss facility by either number of ticks or number of points.
Another example for using in illiquid stocks is: If ABC is trading above Rs. 400.00 and more than 20,000 shares have been traded since morning, buy me 200 shares at a price no more than 403.00. The buying should be done between 10 am and 2pm only.
Advanced conditional orders link together multiple orders to better manage the trading goals.
Example: Bracket Order provided by Symphony. It allows user additional conditions like multiple profit target taking levels, partial profit booking, and even custom base price for calculating profit target levels.
Another example is 2-Leg Order used for pair trading. A 2-leg order allows you to buy or sell simultaneously in two scrip based on the summation of their prices, or the sum of ratio of the prices.