Cover Order
A cover order is an intraday order type that combines a market or limit entry order with a mandatory stop-loss order, providing a capital-efficient way to trade with reduced margin requirements due to the capped downside.
The cover order (CO) was a two-legged intraday product that differed from the bracket order primarily in that it did not include a pre-set profit target. A cover order entered a position (via market or limit order) and simultaneously placed a stop-loss order, which locked in the maximum possible loss for the trade. The absence of a target leg meant the trader could manually decide when to exit on the profit side, while the stop-loss leg ensured automatic protection against runaway downside.
The reduced margin requirement for cover orders stemmed from the same principle as bracket orders: because the maximum loss was mathematically bounded by the stop-loss distance, the exchange and broker could calculate a worst-case loss figure and require only that amount as margin rather than the full notional value of the position. This allowed traders to utilise their capital more efficiently for intraday strategies.
On Indian broking platforms, cover orders were available for equities, equity derivatives (futures and options), currency derivatives, and commodity futures. The stop-loss leg of a cover order was typically a stop-limit order — it triggered when the price reached the stop level and then executed as a limit order within a narrow band. In extremely fast-moving or gap-scenario markets, there was a risk that the limit order did not execute if the price moved through the stop level rapidly, though this was a low-probability event in normal market conditions.
Like bracket orders, cover orders were mandatory intraday products in India. Positions not closed by the stop-loss trigger or manual action before the broker's square-off time — typically 3:20 PM — were automatically squared off at market price. This automatic closure prevented retail traders from inadvertently holding leveraged intraday positions overnight, which could result in margin calls the following morning if the stock gapped adversely.
SEBI's 2020 enhanced margin framework required brokers to collect peak margin from clients during the trading day, which altered the practical leverage available on cover orders. Several brokers revised their CO margin requirements upward in response, reducing the leverage advantage relative to the pre-2020 regime, though cover orders still generally offered better capital efficiency than standard intraday limit orders without embedded stop-loss protection.