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.
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