The process of purchasing securities or future contracts by short sellers willing to close their open positions. It involves the purchase of the same type and amount of securities or futures that were sold short so that short seller can make delivery. This leads to a short-term rise in the trading price of a security or futures contract as short sellers buy their way out of their positions, whereby creating more demand in the market. Short covering would impose losses on the short sellers due to the price increases caused by the increased demand. The phrase “the shorts are covering” is often used to describe the situation when a number of short sellers implement the short covering tactic simultaneously.
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