Definition of short covering

Short covering happens when a trader covers a short position, in other words when he purchases the same number and type of securities that he shorted  (borrowed to sell in the first place). In some cases short covering is used to limit losses. When the securities were sold short in the first place the trader would have believed the price would fall. If the price rises the trader might cover his short position to limit losses.

 

short covering in the news

In March 2013 it was reported that gold had broken through the $1,600 level. Experts said the eurozone situation had triggered a “short-covering” rally, where hedge funds and other financial investors who had previously placed bearish bets on the US futures markets rushed to cover their positions.

In February 2013, "short-covering" was thought to have been a big driver of a rally in the euro.

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