SHORT COVERING Meaning and
Definition
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Short covering refers to the act of closing out a short position in a security or asset by purchasing the same quantity of shares or assets that were initially borrowed and sold short. In short selling, an investor borrows a security from a broker, usually with the expectation that its price will decrease. The borrowed security is then sold in the market, and the investor will eventually have to return the same amount of shares to the broker.
Short covering occurs when the investor decides to buy back the shares in order to close the short position. This action is initiated when the investor anticipates that the price of the security will rise, or there is a fear of potential losses due to an unfavorable market movement. By purchasing the shares in the market, the short seller effectively returns the borrowed shares to the broker and completes the transaction.
Short covering is often seen as a risk management strategy to limit potential losses in a short position. It can also be influenced by market factors such as positive news, improved financial performance of a company, or a short squeeze. Additionally, short covering can contribute to an increase in demand for the security and lead to a rise in its price, which can further incentivize other short sellers to cover their positions.
Top Common Misspellings for SHORT COVERING *
* The statistics data for these misspellings percentages are collected from over 15,411,110 spell check sessions on www.spellchecker.net from Jan 2010 - Jun 2012.
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Etymology of SHORT COVERING
The term "short covering" originated from the world of finance and specifically from the practice of short selling.
"Short" refers to the act of selling a security (such as stocks, commodities, or currencies) that the seller does not currently possess. This is done with the expectation that the price of the security will decline, allowing the seller to repurchase it at a lower price in the future to return it to the lender.
"Covering" simply means closing out or buying back a short position by repurchasing the security that was sold short.
Therefore, "short covering" refers to the buying back of a security that was previously sold short, usually to lock in profits or limit losses. The term emerged from this action of covering or closing the short position.
Similar spelling words for SHORT COVERING
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