The act of completing an offsetting transaction so as to eliminate a liability or obligation. It is generally used in the context of risk exposure, as when an investor decides to cover a short position in a stock to eliminate the risk of a "short squeeze." Covers normally reduce both risk and return of a particular position.

The term "cover" is distinct from "coverage," which, in the world of finance, indicates financial ratios that measure a company's margin of safety in servicing its debt and making dividend payments.


As a generic term, "cover" has a number of different connotations, but it's mainly used to indicate an act of lowering risk exposure. For instance, in the currency markets, the term forward cover is used to denote forward currency transactions that are undertaken for hedging purposes, to reduce currency risk.

  1. Short Covering

    Buying back borrowed securities in order to close an open short ...
  2. Short Selling

    Short selling is the sale of a security that is not owned by ...
  3. Short Squeeze

    A situation in which a heavily shorted stock or commodity moves ...
  4. Covered Call

    An options strategy whereby an investor holds a long position ...
  5. Coverage Ratio

    A measure of a company's ability to meet its financial obligations. ...
  6. Hedge

    Making an investment to reduce the risk of adverse price movements ...
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  3. Are hedge funds regulated by FINRA?

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