Have you ever heard of short selling? It's like borrowing a toy and hoping its value goes down before you have to return it. Short covering is the opposite – buying the toy back! If lots of people try to buy back at the same time, the price goes up quickly, which can be good or bad depending on if you're buying or selling.
- Short selling is borrowing and selling something, hoping the price drops.
- Short covering is buying it back to return it.
- If many people cover at once, the price jumps up!
| What Happened | Example |
|---|---|
| Short Sell | Someone borrows and sells 100 shares of a company at $50 each. |
| Short Cover (Price Drops) | They buy back the shares at $40 each, making $10 profit per share. |
| Short Cover (Price Rises) | They buy back at $60 each, losing $10 per share. |
