For intraday traders, cover orders are a significant way to protect their positions in the market. They help reduce risk by placing buy and sell orders simultaneously for the same instrument. Of these, the buy order is placed above the current market price, while the sell order is placed below the market price. The idea is to limit potential loss by placing a stop-loss order.
This ensures profit while limiting loss, in case the market moves unfavorably. This is important for intraday traders wishing to hedge their position to minimize risk in a volatile market. A stop loss order is mandatorily placed with a cover order and cannot be canceled later.
With Definedge, cover orders are available across all segments.
You can place a cover order through a market order or a limit order.
Cover Orders are only available for intraday traders and have to be squared off before the day ends. Any pending orders at 3:12 PM will automatically be cancelled by the system and any open positions at 3: 15 PM will automatically be squared off and your position will be exited irrespective of whether your stop loss is triggered or not.
When you are placing a cover order, make sure to enter the right limit price for your order.
For a buy cover order, your limit price should be higher than your stop-loss trigger price and for a sell cover order, the limit price should be lower than your stop-loss trigger price. Our system is designed in a way that you don’t have to put a stop-loss trigger price, but instead, just the stop-loss.
When you place a Buy cover order, the system will automatically subtract your stop-loss from the current market price to generate your stop-loss price.
So, if your current market price is ₹100 and you place a stop-loss of 5 points for a Buy Cover order, your effective stop-loss trigger price will be ₹ (100 – 5) = ₹95.
Similarly, for a Sell cover order, the system will add your stop-loss to the current market price to give you your effective stop-loss trigger price.
This means that for a Sell Cover order, if the current market price is ₹100 and your stop-loss is 5 points, your effective stop-loss trigger price will be ₹ (100 + 5) = ₹105.
How to place a cover order?
Our TradePoint desktop software allows you to place buy or sell cover orders across all segments.
To place a cover order, log in to your TradePoint dashboard, and under the market drop-down, select the option to buy or sell as per your choice.
For this example, we will choose Buy option.
Once you choose to buy an Order, the Buy Order pop-up will open. Under the product drop-down, choose CO (for Cover order).
Choose other required details like the exchange, stock, order type (limit order or market order), and validity. Enter details like Order Quantity, and the stop-loss.
For example, we choose a Limit order for the RELIANCE stock, the current price of which at the time of order was ₹2424. If we wish to have a stop-loss price of ₹2422, we will put our stop-loss as 2 points.
Once all details are filled in, click on Buy and give confirmation on the pop-up window to complete your order.
Once the cover order is placed, you can check it under reports. On the dashboard click on Order Book under the Reports drop-down.
In the Order Book section, you will be able to see your Cover Order.
As you can see, the order was triggered at the price of ₹2422.
If you have any queries on the subject, reach out to us at [email protected].