Cover Orders (COs) can be described as a mechanism that limits your loss in turn reducing the risk. In other words, cover order can be a market or limit order that is placed with a stop loss order. When a stop loss order is placed, you will know in advance the maximum loss that you have to incur if the trade doesn’t work for you.
The objective of a cover order is to decrease the risk for both, the trader and broker.
When the cover order is a market or limit order that’s placed with a mandatory stop loss order within a stipulated range, the stop loss order can’t be cancelled.
If we consider that the stop loss is placed at the same time when you get into a contract, then the risk involved will diminish automatically.
Note that COs are only for intraday and any open intraday positions will be squared-off by us if you are unable to square them off within the specified time. The intraday square off timings are subject to change if our risk department finds it necessary to do so.
Cover Orders aren’t permitted on BSE and Options in Futures and Options section.
You should also know that when placing a buy CO, your limit price has to be greater than your stop loss trigger price. In contrast, when you place a sell CO, your limit price has to be lower than your stop loss trigger price.