Covering (Buy to Cover)
Buying shares back to close out a short position.
What is Covering (Buy to Cover)?
The closing trade on a short sale. The borrowed shares are repurchased in the market and returned to the lender, realizing the gain or loss.
Covering (Buy to Cover): a worked example
Shorted at $50, buy to cover at $38 - a $12 per share gain.
More terms in Positions & Trade Mechanics
Long Position
You own the asset and profit when its price rises.
Short Position (Short Selling)
You borrow shares, sell them, and profit if the price falls.
Margin
Borrowing from your broker to buy securities, using the account as collateral.
Cash Account
An account where every purchase is paid for in full, no borrowing.
Leverage
Using borrowed money to increase exposure relative to your own capital.
Initial Margin (Reg T)
The equity you must put up to open a margin position - generally 50%.
Maintenance Margin
The minimum equity percentage you must keep in a margin account.
Margin Call
A demand to add cash or securities after equity falls below maintenance.