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Cover Order Explained
What is Cover order? How to Use Cover Order? Benefits of Cover Order?
How to use Cover Order in Stock Market?
Does ProStocks Provide Cover Order?
Cover Order is Intraday or Carry Forward or Delivery order?
Introduction
A Cover Order (CO) is two leg orders where first leg of the order creates position and second leg of the order is position off setting/closing stop loss order. As name suggest second leg stop loss order give cover or protection to losses which may arise from first leg order, hence called Cover Order (CO). Cover Order has inbuilt protection. Cover Order is synthetic order is not supported by Exchange API and is created by combining one normal or regular order with one stop loss order, hence synthetic order.
Benefits of Cover Orders
Cover Order allows you to simultaneously place position creating order and corresponding position closing order, in one go.
Cover Orders help you limit any potential losses that could be incurred on a position.
Limited Risk/loss and Maximum Profit: Cover Orders minimize downside risks and provide effective control over risk management. Since there is always a second leg stop loss corresponding to first leg trade/position, Cover Order help users trade in a disciplined manner.
In Nutshell, Cover Order reduces downside risk without imposing any limits on their returns.
How Does a Cover Order Work?
- A Cover Order (CO) is a two legged order. First leg can be Buy or Sale with compulsory corresponding stop loss order in the opposite direction as second leg of the order.
- First leg is also known or referred as parent order and second leg as child order.
- Most Stock Broker if they allow CO, The first entry order will always be a market order. However at ProStocks, first leg which will create position can be limit or market or even stop loss order, which is superior to CO where first leg can only be market order.
- Stop loss order will sit in the order book as a Stop-Loss trigger pending order; once last traded price reaches or crosses the trigger price, it gets triggered (Converted) as a normal market order (from SLM) or normal limit order (from SLL). At ProStocks, second leg is always SLM and first leg if placed as stop loss position creator order, than SLL.
- The trigger price range will be defined daily and the client must place the stop loss order within the specified range. For example, suppose Infosys is trading at Rs. 1700/- and daily price range (also known as circuit limit) for the day is Rs 1530/- to Rs 1870/-. In this case the client can specify the Stop Loss order between the price ranges of Rs.1530/- to 1870/- as the trigger price. Clients are expected to keep sufficient gap from lower and upper limit to ensure that order gets traded.
- Once first leg of the Cover Order (position creator order / parent order) gets traded, the client will not have the ability to cancel the second leg (child) of Cover Order. Second leg (position closing / child) order can be modified but cannot be cancelled.
- Cover Order is presently available as intraday product. Intraday position will be auto squared-off by our system if you do not square them off within the stipulated timings on best efforts basis.
- If second leg of the cover order is rejected / cancelled for any reason, please regenerate second leg or you will have to reach our dealing desk over the phone to square off the position or regenerate the second leg. Please get in touch with us on our helpline at +91-22-62434343 and press 1 for dealing from 9 AM to 5 PM on working days.
- Cover Order are available for Equity, Equity Future & Option and Currency Future & option.
- ProStocks soon intent to introduce Cover Order as Delivery (For Equity segment) and Carry Forward (for Derivatives segment) product.
How to place Cover Order
Buy Cover Order where First Leg is Normal Order
E.g. Reliance current price is Rs 105 and you intend to buy 100 shares @ Rs 100/- per share and to protect yourself from downside, you want to keep a stop loss of Rs 5.
To place Buy Cover Order go to order entry window and select Cover. Then you need to give the Quantity as 100, Price as 100 and Stop Price as 5.
In Stop Price you need to put the difference price between limit price per share and trigger price per share.
So as on when Reliance Price falls to Rs 100 your Buy Order will get traded and a Sell Stop Loss Market Order (SLM) will get placed where price is Market and Trigger is 95. Remember your actual trade may be lower than Rs 95 (as this is SLM) as trigger will happen when last traded price will come to Rs 95 and trade will happen at best possible market rate.
Buy Cover Order with first leg is also Stop Loss order
E.g. Reliance current price is Rs 100 and you intend to buy 100 shares if price goes to Rs 110/- per share and to protect yourself from downside, you want to keep a stop loss of Rs 5.
To place Buy Cover Order with First Leg is Stop Loss, go to order entry window and select Cover and then select SL. You need to give the Quantity as 100, Price as 110, Stop Price as 5 and First Leg Trigger Price as 109.25.
So as and when Reliance Price goes to Rs 109.25, your Buy SL Order will get triggered with limit price of Rs 110. Assume 100 shares got bought @ Rs 109.5. Now Sale Stop Loss Market Order (SLM) will get placed where price is Market and Trigger is 104.5 i.e. actual buy price of Rs 109.5 minus stop loss of Rs 5. Remember your actual trade may be lower than Rs 110 even when Buy order was a limit order as trigger price was 109.25 and not Rs 110. Remember, In Rare case, your order may become pending also at Rs 110, if price shoot up to above of Rs 110 from a single buy order of other client in market from Rs 109.25 to higher of Rs 110.
Sell Cover Order where first leg is normal order
E.g. Reliance Current Price is Rs 100 and you intend to sell 100 shares @ Rs 105/- per share and to protect yourself from downside, you want to keep a stop loss of Rs 5.
To place Sell Cover Order go to order entry window and select Cover. Then you need to give the Quantity as 100, Price as 105 and Stop Price as 5.
So as on when Reliance Price rises to Rs 105 your Sell Order will get traded and a Buy Stop Loss Market Order (SLM) will get placed where price is Market and Trigger is 110. Remember your actual trade may be greater than Rs 110 (as this is SLM) as trigger will happen when last traded price will come to Rs 110 and trade will happen at best possible market rate.
Sell Cover Order with first leg is also Stop Loss order
E.g. Reliance Current Price is Rs 100 and you intend to sell 100 shares if price goes to Rs 95/- per share and to protect yourself from downside, you want to keep a stop loss of Rs 5.
To place Sell Cover Order with First Leg is Stop Loss, go to order entry window and select Cover and then select SL. You need to give the Quantity as 100, Price as 95, Stop Price as 5 and first leg trigger price as Rs 95.75
So as and when Reliance Price goes to Rs 95.75, your Sell SL Order will get triggered with limit price of Rs 95. Assume 100 shares got sold @ 95.50. Now Buy Stop Loss Market Order (SLM) will get placed where price is Market and Trigger is 100.5 i.e. actual sell price of Rs 95.5 plus stop loss of Rs 5. Remember your actual trade may be greater than Rs 95 even when Sell Order was a limit order as trigger price was 95.75 and not Rs 95. Remember, In Rare case, your order may become pending also at Rs 95, if price shoot down to lower than Rs 95 from a single Sell order of other client in market from Rs 95.75 to higher of Rs 95.
