Brackets and OCO
You now know the three basic order types. This lesson shows how to tie them together so every trade has a planned way out before it starts.
OCO: one cancels the other
The CFTC glossary defines a One Cancels the Other (OCO) order as a pair of orders where, if one fills, the other is automatically canceled.
Why that matters: imagine you are long 1 MES with two exit orders working, a stop below and a profit target above. If the target fills, you are flat. But if the stop is still working, a later drop could trigger it and sell you short without meaning to. OCO prevents that by canceling the second order the moment the first one fills.
Brackets
A bracket is an entry order with two exits attached:
- a stop to get out if price goes against you (Lesson 4), and
- a target, usually a limit order, to get out if price goes your way (Lesson 3).
The stop and target are linked as an OCO pair. Once the entry fills, both exits start working. Whichever fills first closes the trade and cancels the other.
CME’s course on submitting orders notes that stops and targets can be added on the DOM as plans to exit for a loss or a profit, set to trigger automatically. That is the idea behind a bracket.
A worked example
Example prices, not real quotes. The distances below are only for showing the arithmetic, not a recommendation.
You buy 1 MES at 6,000.00 with a bracket:
| Leg | Order | Price | Distance | Dollars on 1 MES |
|---|---|---|---|---|
| Entry | Buy | 6,000.00 | ||
| Stop | Sell stop | 5,995.00 | 5 points = 20 ticks | 20 x $1.25 = $25 loss |
| Target | Sell limit | 6,010.00 | 10 points = 40 ticks | 40 x $1.25 = $50 gain |
If price reaches 6,010.00, the target sells and the stop is canceled. If price reaches 5,995.00 first, the stop triggers and the target is canceled. Remember from Lesson 6 that a stop can fill a little worse than its trigger.
For a short, everything flips: buy stop above, buy limit target below.
Why traders use them
CME’s lesson on closing positions lays out the trade-off. An exit order placed in advance means you do not need to be at the screen for it to fill. The cost is that a planned exit may take you out before a move is finished, or stop you out just before price comes back. Watching and exiting by hand gives flexibility, but CME warns it can also mean staying in a losing trade longer than planned.
CME’s risk management lesson calls stops essential for individual traders, as protection against a loss larger than you can handle. A bracket simply makes sure that protection exists from the first second of the trade.
Who runs the bracket
OCO links and brackets are not on CME’s list of CME Globex order types (limit, market-limit, market with protection, stop-limit, and stop with protection). So the linking is done by your broker’s or platform’s software: it watches for one leg to fill and cancels the other for you.
That means behavior can differ between platforms. Questions to answer on your own platform, in a simulator, before using real money:
- Do the exits appear only after the entry fills?
- If the entry partly fills, do the exits match the filled quantity?
- If you close the trade by hand, are the bracket orders canceled automatically?
Key ideas
- OCO links two orders so that when one fills, the other is canceled.
- A bracket is an entry plus a stop and a target, with the exits linked as OCO.
- Brackets put your exit plan in place the moment you are filled.
- Brackets and OCO are managed by your broker or platform, not by CME Globex. Test how yours behaves in a simulator.