A Cover Order is a special type of order through which the user can take an intra-day position and take advantage of extra exposure while being protected through a stop loss order.
The system will place two orders simultaneously: a market order and a corresponding stop loss market order which would only get triggered at the specified stop loss trigger price. If the trigger price is hit, the stop loss order gets executed as a market order. The combination of both these orders being placed simultaneously is known as a Cover Order. Cover Orders help you limit any potential losses that could be incurred on a position.
Limited Risk and Maximum Profit: Due to the inherent way Cover Orders work, they help traders minimize downside risks and provide better control over risk management. Since there is always a stop loss corresponding to each trade, Cover Orders can help users trade in a more disciplined manner. Users can take advantage of the margin benefits as well, using the Cover Order facility to leverage their positions greatly while enjoying the benefits of a stop loss to protect them from downside risk. Overall, Cover Orders reduce downside risk but do not impose any limits on their returns. This is a classic example of a win-win situation.
A Cover Order is basically a two legged order. The client needs to place a buy/sell order with compulsory corresponding stop loss order in the opposite direction.
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