Cover

AAA

DEFINITION of 'Cover'

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.




INVESTOPEDIA EXPLAINS 'Cover'

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.




RELATED TERMS
  1. Short Covering

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

    The sale of a security that is not owned by the seller, or that ...
  3. Short Squeeze

    A situation in which a heavily shorted stock or commodity moves ...
  4. Coverage Ratio

    A measure of a company's ability to meet its financial obligations. ...
  5. Covered Call

    An options strategy whereby an investor holds a long position ...
  6. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
Related Articles
  1. Finding Undiscovered Stocks
    Options & Futures

    Finding Undiscovered Stocks

  2. Cut Down Option Risk With Covered Calls
    Options & Futures

    Cut Down Option Risk With Covered Calls

  3. Why Interest Coverage Matters To Investors
    Bonds & Fixed Income

    Why Interest Coverage Matters To Investors

  4. Using LEAPS In A Covered Call Write
    Options & Futures

    Using LEAPS In A Covered Call Write

comments powered by Disqus
Hot Definitions
  1. Last In, First Out - LIFO

    An asset-management and valuation method that assumes that assets produced or acquired last are the ones that are used, sold ...
  2. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  3. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  4. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  5. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  6. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
Trading Center