Cover

"Cover" means to close out a trade you already have open, though in everyday trading talk it almost always refers specifically to buying back shares (or contracts) to exit a short position.

A short sale works backwards from a normal trade: you borrow shares and sell them first, hoping to buy them back later at a lower price. That buy-back step is called covering. Until you cover, your risk stays open — the stock can keep rising and your loss keeps growing, since there's no ceiling on how high a price can go. Once you cover, the position is flat and your gain or loss is locked in.

People sometimes stretch the word to mean closing any position, long or short, but that's loose usage. If someone says "I covered my short in XYZ at $42," they bought shares at $42 to return to the lender and end the trade. If they just say "I covered" without context, check whether they were short in the first place.

The nuance that trips beginners up is confusing "cover" with "close" more generally, or assuming it applies to long positions. It doesn't, strictly — for a long position you "sell" or "exit," not "cover." Also worth knowing: heavy buying to cover shorts en masse, especially when a stock spikes and shorts rush to exit at once, is what people mean by a "short squeeze."