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Short covering is the process of buying back a security that was previously sold short to close out the position.
1. Short Covering: Definition, Meaning, How It Works, and Examples - Investopedia
Short Selling: An investor borrows shares of a stock and sells them, expecting the price to decline.
1. What short selling can reveal about a stock's real value - Mendoza College of Business
Price Increase: If the stock price rises instead of falling, the short seller faces potential losses.
Short Covering: To avoid further losses or to realize a profit if the price has declined, the investor buys back the same number of shares they initially borrowed. This closes out the short position.
1. Short Covering: Definition, Meaning, How It Works, and Examples - Investopedia
Buy to Cover: Short covering is often referred to as "buying to cover."
Profit or Loss: Short covering can result in either a profit or a loss, depending on the original short sale price and the current market price.
1. Short Covering: Definition, Meaning, How It Works, and Examples - Investopedia
Short Squeeze: If many short sellers are forced to cover their positions simultaneously due to a rapid price increase, it can lead to a short squeeze, where the price rises sharply due to increased buying pressure.
1. Short Squeeze: Definition, Causes, and Examples - Investopedia
In essence, short covering is the opposite of short selling. It's the action taken to close out a short position by purchasing the previously borrowed shares.
1. What Is the Difference Between a Short Squeeze and Short Covering? - Investopedia