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A bracket order and cover order are two types of intraday orders that traders can place to limit their losses. Both the orders include an initial order of buy or sell. However, a bracket order has two additional reverse orders, while the cover order has just one additional order. With bracket order, you can plan your profit and loss, while you can mitigate your risk with a cover order. This article covers in detail bracket order, cover order, and bracket order vs cover order.

What is a Bracket Order?

A bracket order is an intraday order that combines a buy order, stop-loss order, and a target order. In other words, along with an initial order (buy or see), there will be two opposite side orders placed.

Bracket order = initial order (buy or sell) + stop-loss order (sell or buy) + target order (sell or buy).

For instance, if the initial order is a sell order, then both the target and stop-loss orders will be buy orders. Similarly, if the initial order is a buy order, the remaining two will be sell orders.

Stock market traders can benefit from squaring off a favourable position at the end of the trading session from a bracket order. Intraday traders can reduce their risk through bracket order trading. With the target order in place, traders will be able to book a profitable position, or with the stop-loss order in place, they will be able to limit losses to some level.

How Does a Bracket Order Work?

A bracket order is designed to complete or bracket your order. There are typically three orders in a bracket order: the initial order, stop-loss order, and target order. The initial order can be a buy or sell, but the other two orders are opposite orders.

So, if the first order is a buy order, the other two are sell orders. And along with the initial order, only one of the other two orders will be placed. Moreover, if the initial order is not placed, the other two orders naturally won’t be placed. This is because all the orders are limit orders and not market orders.

Let’s understand this with the help of an example. Let’s say you placed an initial buy order at a price of INR 50 per share. Along with this, you placed a target order at INR 55 and stop-loss at INR 48. The initial order will be executed only when the market price reaches INR 50.

Once the order is executed, by the end of the day, if the share price increases and touches INR 55, your sell order will be placed, and the broker cancels the stop-loss order.

However, if the market falls and the share price goes down, the stop-loss order will be placed when the share price reaches INR 48, and the broker cancels the target order.

If the initial order isn’t executed, the broker cancels the complete bracket order as it is an intraday order and will not be carried over to the next day.

List of Stock Broker Providing Bracket Order in India

  • Zerodha
  • Upstox
  • HDFC Securities
  • Kotak Securities
  • Sharekhan
  • Motilal Oswal
  • IIFL Securities
  • Alice Blue
  • 5Paisa
  • TradeSmart

What is a Cover Order?

Cover order is another type of intraday order that combines a buy order and a compulsory stop-loss order. It has an inbuilt risk-mitigating mechanism. A cover order helps minimise the losses by safeguarding traders from unexpected market movements.

Cover order = initial order (buy or sell) + stop-loss order (sell or buy).

Cover orders offer significant leverage and are available in both Equity F&O and Equity Cash. The two limit or market order and stop-loss order can be used to buy long or sell short.

The main benefit of a cover order is the ability to place a stop-loss order and hedge a position against a substantial capital loss. In addition, the mandatory Stop Loss feature minimises risk significantly, and the leverage offered on Cover Orders is far higher than that of naked intraday orders.

Furthermore, with a cover order, you are well aware of the maximum loss you will bear in advance. Since the cover orders are only intraday orders, any open positions will be automatically squared off by the system at the stipulated time.

How Does a Cover Order Work?

A cover order has two constituents, namely the market order or limit order and a stop-loss order.

A market order will allow the trader or investor to buy or sell at the market price. And a limit order will require only the trader to buy or sell the stock at the desired price.

A cover order must include a stop-loss order. A stop-loss order will reverse the initial order in case the market is in unfavourable conditions. A stop-loss order will ultimately reduce the risk for the trader. The stop-loss order can be modified anytime during the day but cannot be cancelled.

Let’s understand the cover order better with the help of an example. If you place an order to sell 100 shares of a company at a market price of INR 75 and also place a stop-loss order at INR 80. If the share price starts going up after you sell the shares, the maximum loss you will incur is INR 5 per share as the stop-loss order is placed.

However, you can also modify this order and change the stop loss to INR 78 if you want to restrict the loss further. But if the share price doesn’t rise and the stop loss is not triggered, the exchange squares off the position leading to lower capital losses.

List of Stock Broker Providing Cover Order in India

Following are the list of brokers offering cover orders in India.

  • Zerodha
  • Upstox
  • HDFC Securities
  • Kotak Securities
  • Sharekhan
  • Motilal Oswal
  • IIFL Securities
  • Alice Blue
  • 5Paisa
  • TradeSmart

Bracket Order vs Cover Order

Basis of DifferenceBracket OrderCover Order
MeaningA three-legged order that includes – initial order, stop-loss order and target order.A two-legged order that includes initial order and a compulsory stop-loss order.
SignificancePlan profit and loss.Mitigate risk.
Squaring off the OrderIf the initial order isn’t executed, the broker cancels the complete bracket order and will not be carried over to the next day.If the stop loss is not triggered, the broker squares of the position leading to lower capital losses.
Bracket order vs Cover order
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