WHAT IS A COVER ORDER?
Cover order is a market order that is placed along with the compulsory stock loss. In a cover order the amount of risk taken by the trader is minimized because he has to place the stop loss compulsorily. Cover order also helps in reducing the margin requirement thereby allowing higher leverage to the users in intraday.
important : all cover orders are squared-off at 3.25 pm in equity and futures. CO are squared-off at 11.30 pm in MCX.
HOW TO MAKE USE OF A COVER ORDER ON ZERODHA?
The image given above is a live example of placing a cover order on Zerodha. This trade on axis bank was taken on 3rd April 2020. Axis bank was selected after analyzing based on our strategies. Axis bank was creating a support point at 349 and nifty 50 was also bearish.
as per our strategies and analysis we expected a breakout from its support. therefore, we placed a cover order on 300 quantities of axis bank with entry point 349 and stop-loss at 355.22. In this case the risk would be 6rs per share.
after a point of time nifty was picking up, so we expected a reversal incase of axis bank. therefore we decided to change the stop loss to 347.5. We changed it because of we expected the same moment of nifty in axis bank also. our primary aim is to protect our capital or minimize our losses.
given below is the image representing the modification in stop loss.
our profit had been gone up to 1000rs but we couldn’t book it.in Zerodha partial profit, booking is not allowed.it is allowed in other platforms like upstox.
since we couldn’t book profits in between, our final profit was only 450rs.so cover order is very useful in minimizing losses or protecting capital.