Short Covering

Short covering

Used in the context of general equities. Actual purchase of securities by a short seller to replace those borrowed at the time of a short sale.

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Short Covering

What Does Short Covering Mean?

Buying back a security to close an open short position. This is done by buying the same type and number of securities that were sold short. Most often, traders cover their short positions whenever they anticipate a rise in the price of the underlying security. To make a profit, a short seller must cover the short position by purchasing the security below the original short selling price. Also referred to as buy to cover or buyback.

Investopedia explains Short Covering

For example, suppose a trader sells short 50 shares of ABC stock at $10 per share, hoping that ABC's stock price will fall. However, if ABC rises, say, to $15 per share, the trader may decide to cover the short and buy it back at that price. In this case, the trader loses $5 per share ($10 - $15).

Related Terms:
• Buy to Cover
• Margin Call
• Naked Shorting
• Short Interest
• Short Squeeze