Trader Q&A: How can brackets manage trade risk?

[Lou] Let’s take our next question. Pete in
Florida, “What kind of risk-management tools does Schwab have in their trading platform,
StreetSmart Edge?” [Kevin] I’ll be happy to speak to that for
you, Pete. So in the Edge platform, you certainly have access to many of the same tools that
you would expect in terms of risk management, your traditional stop and stop-limit orders
that you get access to on the Web site of course. And probably the biggest step
that the StreetSmart products have made is the access to bracket orders or conditional
orders if you choose. You know, the bracket orders — what we talk about most with brackets
are the opportunities to step into a trade in advance. So getting back to what we often
will discuss, having a strategy, having a plan, building it out front and then protecting
yourself immediately. So in Edge, you have the opportunity as well as .com to step into
your trade and, upon execution, have your exit strategy both below the market as well
as above the market level for you already implemented. And it’s set with our server.
So I do hear from time to time people are a little uncomfortable with the idea of a
stop order being available to the market makers so to speak. And these are orders within our
server at Schwab. So — [Lou] So talk about that really quick.
[Kevin] Sure. [Lou] Often, clients will say they don’t want
their order to be seen by a market maker, especially if they’re placing a stop. You’re
saying, if they place that bracket order, the market won’t see that order?
[Kevin] That is correct because the details of that order — those brackets are associated
with our server and our detail. So when the conditions of that bracket are met, our system
is submitting a market order on your behalf at that moment. And that’s the moment that
the market sees that order. [Lou] Great. Also, that’s removing the emotions,
right. [Kevin] Absolutely.
[Lou] Before they buy into the stock, they’re already setting up that plan. Rob, do you
mind telling us — if a client is trading currently with Schwab and they’re already
in a position that they’re trying to add a bracket to, can they do that? And how would
they do that? [Robert] Absolutely. So not only does Schwab
give you the ability to add a bracket on your initial purchase. But you can add it afterwards.
Maybe you already own, you know, 1,000 shares of a company. And you think, boy, I’ve owned
this company for a couple years. I’m not quite sure what I want to do with it. But I think
there is some risk coming. Maybe you add a bracket at that point, you know. You can add
a bracket later. You can also add a bracket just for a portion of the number of shares
that you own. You’re not required to do it for the full number of shares that you have
with the security. You have 1,000 shares. Maybe you only want
to bracket 300.

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