Below are the primary benefits of cover orders for intraday traders:
- Discipline: Putting a stop loss while trading intraday is very important. However, most traders usually keep a SL in mind rather than on the system. Even if we put a SL order, we most likely cancel it rather than letting it get triggered.While placing a cover order, you have to mandatorily place a stop loss order within a a specified range from where you are entering the contract and cannot cancel it. The SL order can be modified, but within the specified range itself. This way you are also limiting your losses very fast if there are any.
- Higher Exposures: Since the losses are limited, the risk you are taking reduces. Hence, we can also offer a higher leverage. Cover orders are meant only for intraday traders as one has to square off all his/her positions by 3.10 pm. For example,
Buying 25 qty Nifty futures at 8000 in MIS would require aproximately Rs 8,200 in margin. With cover orders, the requirement will be Rs 5,100. You save margin of Rs. 3100!
Buying 1 lot of Silver at Rs 38,000 in MIS would require Rs 29,000 in margin. With cover orders, the requirement will be Rs 19,000. You save margin of Rs. 10,000!