Cover Order and Bracket Order

cover order and bracket order blog banner Cover Order and Bracket Order

There were times when we used to sit and gaze upon the computer to see either of our stop loss order or our target order getting executed so as to cancel the other order that is not executed.  The very idea and purpose of entering the stop loss order and target order in advance was not to miss the price and to limit our loss in case of adverse movement in stock price. And of course, also to combat the time constraint some traders and investors face.  But in reality, though it required the trader to be present and watching the trading screen to manage the orders.

At the backdrop of this, the specialized order types called “Cover Order” and “Bracket Order” were introduced to online traders by stock brokers in India.  In this column, we will see everything we need to know about these exciting order types.

What is Cover Order and Bracket Order?

Cover order and bracket orders are advanced intraday orders.  Cover order is an order where a trader can enter his initial order (main order to buy or sell) along with a stop loss order built into the same order.  It is a two-in-one order as stop loss and initial order is entered in a single order.

Cover Order = Initial Order + Stop Loss Market Order

Whereas bracket order is one step forward order where target order is also entered along with initial order and stop loss order.  Bracket order is a three-in-one order as it combines both stop loss order and target order along with the initial order.

Bracket Order = Initial Order + Stop Loss Market Order + Target Order

How does a cover order and bracket order work?

Cover Order

When a cover order is placed, the system will first execute the initial order (main order). Once the initial order is traded, the stop loss order gets activated.

Examples and Scenarios
If you want to buy a stock that is trading around Rs.100 and you want to buy it when it comes down to Rs.95.  But you have no time to watch the market and you also know the market involves risk. In this scenario, by using cover order facility you can place a buy order at Rs.95 and a stop loss market order with trigger price at Rs.90 in just a single order.  The system will first execute the buy order at Rs.95 when the price comes down. Once the initial buy order is traded, the stop loss order at Rs.90 gets activated. Now let us see what happens under 2 different scenarios.

Scenario 1 – Initial buy order not executed

If the initial buy order is not executed and it remains pending, the system will cancel the order anytime before 30 minutes of market closing time as cover and bracket orders are intra-day orders.

Scenario 2 – Initial buy order executed and stop loss order remains pending

When the initial buy order is executed, stop loss order gets activated.  If the price does not reach the stop loss price of Rs.90 till 3 p.m and you have not closed the position yet, the position gets squared off automatically by the system. The system does this by modifying the limit trigger price to market trigger whereby the stop loss order gets immediately triggered and traded. This is what happens when you also manually EXIT the cover order.

Bracket Order

When a bracket order is placed, the system will first execute the initial buy/ sell order. Once, the initial order is traded, the stop loss order and target order gets activated.  Then the system will wait for either the stop loss order or target order to be traded. When one of the two gets traded, the other stands cancelled automatically. That is why Bracket order is also called One cancels the other (OCO) order. When you place a limit bracket order and if the initial order is not traded you would not be able to see the stop loss order or target order in the order book and hence you cannot modify the stop loss trigger price or target price.. You can however, modify the price of the initial order in the bracket order as long as the initial order is not traded. Once the initial order is traded you would see the target order and stop loss orders as 2 separate orders in the order book with type as BO signifying Bracket order. You can now modify the trigger price of the stop loss order or limit price of the target orders as long as these orders are not traded. You also have the option to CANCEL/EXIT the stop loss order or target order.

When you CANCEL/EXIT the stop loss order the following happens:
The system modifies the limit trigger price to market price and hence the stop loss order gets immediately triggered and traded. Since this is an OCO order the stop loss order being traded automatically cancels the target order.

Also Read: What is an “After Market Order (AMO)” & What it can do for you?

When you CANCEL/EXIT the target order the following happens:
The system modifies the limit price of the target order to market price and hence the target order gets immediately traded. Since this is an OCO order the target order being traded automatically cancels the stop loss order.

Now for some Examples and Scenarios
We will just alter the same example which we used for cover order and see how bracket order works in 3 different scenarios.  In a bracket order one more order “target order” is included. So, in the example, let us assume you are placing a target order at Rs.110 along with the initial buy order at Rs.95 and stop loss market order with trigger price at Rs.90 when the current market price is Rs. 100.

Scenario 1 – Initial order is open and not traded

If the initial buy order is not executed and it remains pending, the system will cancel the order at anytime before 30 minutes of market closing time as cover and bracket orders are intra-day orders.

Scenario 2 – Initial buy order is traded and stop loss order and target order remains pending

When the initial buy order is traded, stop loss order and target order gets activated.  The system will wait for either stop loss or target order to be traded. If the price does not reach the stop loss price of Rs.90 or target price of Rs.110 till 3 p.m the position gets squared off automatically by the system at the then prevailing market price.The system does this by modifying the limit trigger price of the stop loss order to market trigger whereby the stop loss order gets immediately triggered and traded. The system also cancels the target order since the stop loss order is traded.

This is what also happens when you also manually EXIT/CANCEL the stop loss bracket order.

Scenario 3 – Initial buy order is traded and stop loss order is also triggered and traded

When the initial buy order is executed, stop loss order and target order gets activated.  The system will wait for either stop loss or target order to be traded. If the price reaches the stop loss price of Rs.90, the stop loss order gets traded and target order at Rs.110 gets cancelled automatically by the system.

Scenario 4 – Initial buy order is traded and target order is also traded

When the initial buy order is executed, stop loss order and target order gets activated.  The system will wait for either stop loss or target order to be executed. If the price reaches the target price of Rs.110, the target order gets executed and stop loss order at Rs.90 gets cancelled automatically by the system.

Special optional feature of bracket order

Bracket order has a special feature added to it.  It includes a facility to set trailing stop loss. A trailing stop-loss order is a special type of order where the stop-loss trigger price which is defined by the user keeps changing depending on the price movement of the security and the trailing amount as defined in the order entry screen which is set at a certain number of ticks. A tick is the minimum price change in a security that is allowed by the exchange. For stocks one tick is equivalent of Rs. 0.05 or 5 paisa. We have set the trailing amount to be a minimum of 20 ticks and in incremental of 1 ticks above the minimum.

A sell trailing stop order sets the stop price at a fixed amount below the market price with an attached “trailing” amount. As the market price rises, the stop price rises by the trail amount, but if the stock price falls, the stop loss price doesn’t change, and a market order is submitted when the stop price is hit.

The main difference between a regular stop loss and a trailing stop is that the trailing stop moves as the price moves. For example, for every 2 Rupees that the price moves, the trailing stop can be set to move 2 Rupees. But, if the price starts to fall, the stop loss doesn’t move.

Now for some Examples
In the above example which we used for bracket order, the target price was Rs.110 and stop loss price was Rs.90 and the initial buy price was Rs.95.  In this case, the stop loss is far away from the target price. So, a trader can set or define the stop loss level to increase as the market price of the stock moves up.  If a trader sets the trailing stop loss to be increased by Rs. 2 for every Rs. 5 upward movement in the stock price, then the original ordinary stop loss set at Rs.90 increases to Rs.92 when the price moves from Rs. 95 to Rs. 100.  As the market price moves up, the stop loss price too moves up as per set trailing stop loss level.

Advantages of cover order and bracket order

Risk is controlled
Risk management is essential for a profitable trade.  As we all know the market involves risk and we have also noticed how hazard the price moves sometimes, it will be prudent to set stop loss at the time of initiating a trade.  In line with this idea, cover order and bracket order enables the trader to enter the stop loss order compulsorily and limits the potential loss.

Disciplined approach
Cover order and bracket order helps the trader to practice disciplined approach.  When a trader uses cover order and bracket order, he is forced to analyse the risk involved in the trade and his risk appetite before placing the order.  Similarly, it helps the trader to have a fair view of the trade by calculating the target price.

Automation of trade
Bracket order helps the trader to fully automate his trade thus saving time and effort.  It allows the trader to concentrate on his other works while having full control over his trading risk.

Lesser margin requirement
For cover order and bracket order margin requirement is very less when compared to MIS order.  This is because, by placing a cover order or bracket order, a trader limits his loss by setting the stop loss levels.   In other words, his loss in the trade will be limited to the level that is placed as stop loss. For example, when a trader buys a stock at Rs.90 and sets his stop loss at Rs.85 it means his loss is limited to Rs.5 (90 minus 85).

How to place cover order and bracket order with Tradeplus

Tradeplus provides cover order and bracket order facility in their in-house online trading software Infini Power and its web version and mobile apps.  Cover order and bracket order can be placed either using the menu bar or by using shortcut keys.

Check here for FAQ on how to place Cover Order in Infini EXE, Web and Mobile versions.

Check here for FAQ on how to place Bracket Order in Infini EXE, Web and Mobile versions.

How to modify and exit cover order and bracket order

In cover order and bracket order, the initial order can be modified only when the order is not executed and it is still pending.  Once it is executed it cannot be modified. Only the stop loss order in CO and stop loss order and target order in BO can be modified.

Cover order and bracket order cannot be cancelled.  But however one can exit the position in cover order and bracket order by just clicking “Exit” option provided in the order book.

The links of videos on how to place, modify and exit cover order and bracket order in 3 languages are provided below.

BO and CO videos in English

Cover Order in Infini Web
Bracket Order in Infini Web
Bracket Order in Infini Mobile App

BO and CO videos in Hindi

Cover Order in Infini Web
Bracket Order in Infini Web

BO and CO videos in Tamil

Cover Order in Infini Web
Bracket Order in Infini Web

Key features of cover order and bracket order

  • Cover order and bracket order can be placed in equity cash, equity futures and commodity derivatives. We will enable the same for Equity Options soon.
  • In equity cash segment, cover order and bracket order is available for all the stocks that are traded in equity derivatives segment.
  • In cover order, the initial order can either be a limit order or market order
  • In bracket order, the initial order can be only a limit order.
  • In cover order and bracket order position conversion is not possible. If a trader wishes to convert the cover order and bracket order to normal order after the initial order is executed, it is not possible.
  • Partial exit is also not possible in cover order and bracket order.
  • In case of cover order one need not put a separate target order. The position can be closed by just clicking “Exit”.  On clicking “Exit”, the order gets executed at market price and the position will be closed.

Bottomline

Cover order and bracket orders are a boon to intraday traders who trade heavily in equity and commodities.  Traders can maximize their profit and limit the risk by placing a stop loss or trailing stop loss order along with initial order.  However, the more fascinating feature of cover order and bracket order for intraday traders are the high leverage offered and less margin required.  Especially, we at Tradeplus offer higher leverage for our clients.

So, what are you waiting for? Open an account now and explore the opportunities of cover order and bracket order.

OPEN ZERo Brokerage trading ACCOUNT BUTTON 2 Cover Order and Bracket Order

Are you already a client of Tradeplus but not subscribed to Infini Web? Contact 044-39189483/ 17 or email to infini@tradeplusonline.com to subscribe now.

 

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