The purchase in the cash market of the difference between what you are obligated to deliver in a forward contract and the amount of the asset you own. For example, if you agreed to sell 100,000 bushels of corn in September in a forward contract, but you only have 60,000, you need to purchase 40,000 to cover your obligation.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
A purchase of an asset, especially a commodity, in order to be able to deliver a short position on a forward contract. For example, if one sells a forward contract stating that one must deliver 100 barrels of oil and one only owns 90 barrels, one must make a forward cover of 10 barrels of oil to fulfill the contract.
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