Short Covering -What is Short Covering

Short covering is buying back borrowed securities in order to close an open short position. It refers to the purchase of the exact same security that was initially sold short, since the short-sale process involved borrowing the security and selling it in the market.

For example, assume you sold short 100 shares of ABC at $100 per share, based on your view that the shares were headed lower. When ABC declines to $15, you buy back 100 shares of ABC in the market to cover your short position (and pocket a gross profit of $500 from your short trade). This process is known as short covering.

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