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Cover Order is a feature that helps you get more leverage while taking an intraday position.. While you have the opportunity to gain from high returns by placing a cover order, you get to limit your losses by specifying the stop loss trigger price. While taking an intraday position (which is done at market price), you get to specify the trigger price at the time of taking the position itself. This way the downside risk that would normally be present while taking on a leveraged intraday position is limited by setting the trigger price for the opposite order (square off) at the time of placing the order.
First, Cover Order help you provide higher leverage while doing intra day trading. Secondly, it help you bring discipline into your trading by asking you to place SL order compulsorily thereby limiting your risk or defining your risk in each trade. While higher leverage afford you more trading opportunity, discipline instilled thru SL affords you to protect your capital by limiting your losses in case trade goes against your plan.
Suppose you wish to take a ‘buy’ position on Nifty based on intra-day movements of Nifty. In case of a simple order, you are exposed to both the upside and downside movement of Nifty, thereby susceptible to significant risk in compensation for possible high returns. In such a scenario, the client is better off by placing a Cover Order instead. This way you can: a. Leverage your ‘buy’ position by a measure of approx four times (depending on the margin). b. Specify a trigger price (which is for the opposite position, in this case – ‘sell’). This trigger price ‘sell’ order gets executed only if the market price of the stock falls below the trigger price set by the user at the time of placing the Cover Order. c. Limit losses to the maximum of the difference between the ‘Buy’ market price and the Stop Loss Trigger price in case of a downside movement of Nifty.
The Cover Order feature has now been extended to only Nifty and Bank Nifty. Thus you can now leverage your intraday positions in nifty and bank nifty by using this feature.
A client can either place a Buy Cover Order( Alt+F1) or a Sell Cover Order( Alt+F2). A Buy Cover Order implies buying Nifty, expecting the prices to rise during the day, while specifying the trigger price for the sell order in case of a fall in the price. Similarly, a Sell Cover Order implies selling nifty, expecting the Nifty to fall during the day, and at the same time specifying the trigger price for the buy order in case of a rise in the price.
While the normal buy/sell order will be executed at the market price, the stop loss order remains passive till the set trigger price condition is reached. Only when this happens will the stop loss order become activated.
Let us assume that you wish to place a Buy Cover Order for Nifty which is currently trading at 6650 with a stop loss (to sell) at 6600 In case the Nifty falls to 6600, the stop loss order will be triggered automatically and the cover order will be squared off. All orders that remain open will be auto-squared off by RMS around 3:20 PM at the prevailing market price.
To book profit in cover order you need to go to Order Book by pressing F 3. Order Book window will display you SL order as product type CO. Select your order and click Exit( down right corner of Order Book). Your order will be squared off at Market Rate. Once the orders has been placed you will be able to see it in your order book.(F 3). Stop Loss once placed in Cover Order can not be cancelled but can only be modified within the range as indicated under trigger Price Range. You will be able to amend the Trigger Price “WITHIN THE RANGE” as indicated at bottom left corner as Trigger Price Range.