Short squeeze is a market phenomenon that occurs when there is a rapid increase in the price of a stock or other financial asset that has been heavily shorted.
Short selling is a trading strategy where an investor borrows shares of a stock and sells them on the market, hoping to buy them back later at a lower price to return them to the lender, thereby profiting from the price difference.
In a short squeeze, the price of a heavily shorted stock starts to rise sharply, forcing short sellers to cover their positions by buying back the stock at higher prices to limit their losses. As more short sellers buy back the stock, the demand further drives up the price, creating a feedback loop where rising prices trigger more short sellers to cover their positions, leading to even higher prices.
Short squeezes can be fueled by various factors, such as positive news about the company, unexpected earnings reports, or coordinated buying efforts by retail investors, often facilitated through online forums or social media platforms. Short squeezes can result in significant losses for short sellers and can lead to volatile price movements in the affected stocks.
