What are cover orders and how to use them?

A Cover Order (CO) is an order with an in-built risk mitigation mechanism. A cover order combines a market order or limit order with a stop loss order, ensuring that the maximum potential loss is known in advance if the trade moves against the trader. The purpose of cover orders is to reduce the risk for both the broker and the trader while also allowing the trader to leverage their positions more effectively.

A cover order consists of either a market or limit order placed along with a mandatory stop loss order within a specified range. The inherent risk is automatically reduced by placing the stop loss order simultaneously with the contract. Cover orders are applicable only for intraday trading, and any open intraday positions will be automatically squared-off by the system if not closed within the stipulated timings. To learn more, see What are the auto square-off timings for open intraday positions?

Did You Know?

• The stop loss order cannot be cancelled once placed, as it is an integral part of the cover order.
• Cover orders are not permitted on the BSE and across F&O segments.
• Cover orders can only be exited from the order book.
• When placing a buy cover order, ensure the limit price is higher than the stop-loss trigger price. When placing a sell cover order, the limit price should be lower than the stop loss trigger price. The stop-loss trigger price is allowed within a range of 10% when placing a cover order.