You’ve probably encountered this term at some point of your trading journey, but you might not fully understand its meaning.
Short squeeze pertains to the event wherein a particular stock or security is currently lacking enough supply in the event of an excess demand, causing the prices to move higher.
Due to the fast-rising prices, the traders who are holding short positions are forced to close their trades in order to limit the potential losses.
The thing is, they can only close their short positions by buying the particular stock or security. This sudden flood of the buyers results to the further escalation of the prices.
The short squeeze particularly pertains to what happens during these events, the traders who are holding short positions are “squeezed” out of their positions, usually at a loss, in order to prevent further losses.
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