InvestorQ : Is it better to use cover orders (CO) and Bracket Orders (BO) while trading intraday? How do they work?
Bhavik Nehru made post

Is it better to use cover orders (CO) and Bracket Orders (BO) while trading intraday? How do they work?

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Bhavik Nehru answered.
3 years ago
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If you place an intraday order (MIS) with a compulsory stop loss order tagged to it, then it becomes a Cover Order (CO). This is a type of risk management measure that is built into the order itself. A simultaneous stop loss order and a profit booking order, is called a Bracket Order (BO). CO and BO orders are essentially risk management mechanisms since your downsides and upsides are defined. Normally, when one side of the order gets executed, the other leg automatically gets cancelled. This is true of a BO order where the stop loss and the profit target are put at the same time. If one gets executed the other order becomes irrelevant and therefore the simultaneous closure is taken care of in the BO order. That means, if stop loss is triggered then profit order is cancelled and if profit is booked than stop loss order is cancelled. The leverage that the broker will offer you in the case of CO and BO orders is nearly twice of a normal MIS order. In the process, you not only manage your trading risk better but also get more trading leverage on your margin. That is almost like hitting two birds with one stone. Again, it must be remembered that these are leveraged orders and hence one must take these orders with the realization that it works both ways.

Intraday trading is essentially about managing a trade-off. You need to the best leverage with lowest margins and the best risk management. Smart use of MIS orders and BO/CO orders can help you manage your intraday margins more efficiently.

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