Term: Cover

"Cover" means closing out a short position by buying back the same number of shares (or contracts) you originally sold. Short selling starts with selling something you don't own — typically shares borrowed through your broker — with the plan to buy them back later at a lower price. That buy-back step is called covering.

When you cover, the shares you purchase are used to repay the loan of stock you borrowed to sell short. If the price has fallen since you shorted, you buy back cheaper than you sold, and the difference is your profit. If the price has risen, covering costs more than you received, and you take a loss.

The nuance beginners miss is that "cover" always refers to closing a short, never a long. Closing a long position (one where you bought first) is usually just called "selling," not covering. The two are opposite operations that happen to look similar on an order screen — buy to cover versus buy to open — so it matters which box you're checking.

Another wrinkle: covering isn't always optional on your own timeline. If the shares you borrowed become hard to locate, or if your broker issues a "buy-in" notice, you may be forced to cover regardless of price or your own plan.