What is a CO (Cover Order)? Trading related!

What is a 'CO' in trading?

What are the features?

What are its benefits, and when to use it? 

CO means ‘Cover Order’. (This is strictly MIS - INTRADAY)

This is very useful when you are fairly sure of the movement of a stock.

Let us learn from an example:

Suppose a stock is currently trading at 100. You are fairly certain that the stock will move upwards, and will hit 110 during the day.

You have 5000 rupees in your trading account. With this money you would be able to buy only 50 shares. But if you place a CO order, you will be able to buy a lot more of these shares. So this is the extra leverage you get.

To use this you must specify a Stop Loss (SL) while placing the order. This will make it easier to ascertain your total risk.

Meaning, you can place a CO with a Stop Loss of 95. So you may in this case be allowed to trade with 200 quantities (remember you could have only traded 50 shares!) because you have cleared that your risk is 5 per share. So you may hold more number of shares, and decide to book profits when the price hits 110 which was your target, or even before that!

Therefore because Zerodha (stock broker) knew that the total risk was 200 x 5 = 1000 rupees (and you have 5000 in your account). If the price hits 95, your position will be squared off.

What you need to clarify is your Stop Loss while placing the CO order. Thus your broker (in this case Zerodha) will know the limited risk.

Conclusion:

Due to this CO feature you are able to trade in more quantities. This applies to trading in futures too.

Hope this helped!

Cheers!