What is Cover Order? How to Use Cover Order in Trading?

July 29, 2015 Cover Order, Stop Loss 4 min read
Cover Orders Explained

Stock Market orders have always been a vulnerable affair, to an extent for the equities and a great deal more for Futures and Options and in that volatility, we are always looking for some “Cover”, some sort of safety net that can protect us from a free-fall. That is exactly what a cover order does. It is an intraday order which can not be converted into delivery.

What is cover order & how does it matter in online trading to traders

A cover order is a composite order. Meaning, it has two orders packaged in one.

  • The first is your Market/Limit order for the purchase of a said number of lots.
  • The second order is a stop-loss order placed along with the market/limit order.

What is a stop-loss order?

A stop-loss order is a pending order placed along with a market or limit order that gets executed when the index or a share hits a price predefined by the user. This is done so as to prevent the loss that a client might bear in a very volatile market.

Say NIFTY is at 8860 and I decide to enter the position and short sell 50 lots of NIFTY futures since the market is declining on that day. I might only be in the capacity to bear a loss equivalent to the market going up to 8870. In that case, I can set my stop-loss at 8870 and if the market begins to rise and reaches 8870, this order will get executed automatically and sell off the futures limiting my loss.

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Extra Leverage?

The benefit of a cover order is the leverage that you get. We provide you exposures of up to 5x for stock trading using a cover order. The exchange requires a margin of around 10% for each futures order but we will block only 2% (10%/5) of the required margin money in your account hence making it easier to place the order.

Why go for it when we can place an independent SL?

Stock market traders tend to function funny. What I mean to say is that their passion often overpowers their rational judgement. Stop losses that you put are often cancelled in hopes of a rise and most of the hopes are based on hunches. That is not the best thing to do if you are looking for a long-term trading stint.

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A cover order gives you composure as it is compulsory to place a stop-loss in a cover order to begin with. This discipline has helped a lot of people keep a leash on their emotions and give some discipline to their stock trading habits.

Also Read : Bracket Orders and Trailing Stop-loss Explained

So how do I place a cover order?

It’s simple! I just have to open the order and trades tab and go into Cover order and select a buy or sell cover order or alternatively press Shift + F1 for a Buy Cover Order and Shift + F2 for a Sell Cover Order.

cover order NEST NIFTY futures initiate a cover order

Once inside, I will have to specify the particulars of my trade that include the index, the lot size and other details including my stop-loss trigger price.

So, one fine day, I wanted to trade at NIFTY futures and I decided to take a cover order to keep my loss under control and my strategy intact. I chose to place a limit order of buying 1 lot of NIFTY futures at 8560.

Meanwhile, my finances allow be to take a maximum loss of 10 points. Hence I decide to place my stop-loss at 8550. Which means that the moment NIFTY futures hits the trigger of 8550 my position will position will be sold at market price.

cover order stop loss trigger price for stop loss place a cover order limit order market order

Once the order is placed, I can go into my order book and see both of my orders, the executed market/limit order and the pending stop-loss order that will be triggered if and when the index reaches my specified stop-loss price.

pending order cover order stop loss pending order NITY futures NEST intraday trades

The Limit order for buying NIFTY will be executed once the index hits the limit price that I set for that order.

pending order cover order stop loss pending order NITY futures NEST intraday trades

I can also modify my limit order before it is executed by clicking on the modify button and changing the allowed parameters.

modify cover order stop loss order limit order market order NEST NIFTY fututres

Similarly, if I wish to alter my stop-loss I can do so by selecting the stop-loss order  and clicking on modify. I can change the trigger price within the allowed range.

modify stop loss order cover order NEST NIFTY futures

At any point, I can choose to exit the cover order by selecting my stop-loss order and clicking on exit at the bottom of the page. This will execute the stop-loss at the market price and my position will be squared off.

exit cover order stop loss order market order

In closing, we can say that cover orders are a good way of bringing order to a rather chaotic trading behaviour and helping the trader stick closely to his/her strategy without being influenced by smaller market variations.

Also Read : SINE Advanced trading tools

We hope that this article on cover orders has helped you understand them better. If there is anything else that you need explanation about when it comes to capital markets, please do let us know and we’ll make sure we respond to your request in due course of time.

PS: If you wish to read more on the high exposures that we provide for cover orders and the segments that it is available in, we suggest you read our knowledge base article on cover orders.

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  • Trade Smart Online says:

    Hello Ishan,
    Yes, you can modify cover order above buying price as SL trail when price goes up.

  • Ishan says:

    Can cover order modifications available above buying price as SL trail when price goes further up.

  • Stop Loss Order | Trade Smart Online Blog says:

    […] your order if you use a cover order or a bracket order. You can read further about cover orders on another blog we wrote. The benefit of these orders is the added exposure and hence the reduced margin money […]

  • Difference Between NOW and NEST | Knowledge Base says:

    […] Cover Order […]


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