what risks are associated with short covering 
investors who cover a short position at a higher price than they initially shorted the stock for will incur a loss the act of short covering can trigger further buying creating a short squeeze in the stock increasing the potential for significant losses as traders scramble to buy back shares at progressively higher prices before initiating a short position investors should monitor a stock s short interest and sir to determine the likelihood of a short squeeze occurring the bottom lineshort covering refers to buying back borrowed securities to close out open short positions short sellers usually hold for less time than investors with long positions due to the potential for a short squeeze caused by an acceleration in buying pressure and short covering as a result short sellers generally cover short sales quickly on a turnaround in market sentiment to limit potential losses the higher the short interest and sir in a stock s float the greater the risk that short covering may occur in a disorderly fashion leading to short squeezes a meme stock buying frenzy such as the gamestop short squeeze in early 2021 can result in significant losses for institutional investors with large short positions 