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Short squeeze

 
Investment Dictionary: Short Squeeze

A situation in which a lack of supply and an excess demand for a traded stock forces the price upward.

Investopedia Says:
Short squeezes occur more often in smaller cap stocks with small floats.

If a stock starts to rise rapidly, the trend may continue to escalate because the short sellers will likely want out. For example, say a stock rises 15% in one day, those with short positions may be forced to liquidate and cover their position by purchasing the stock. If enough short sellers buy back the stock, the price is pushed even higher.

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Situation when prices of a stock or commodity futures contract start to move up sharply and many traders with short positions are forced to buy stocks or commodities in order to Cover their positions and prevent losses. This sudden surge of buying leads to even higher prices, further aggravating the losses of short sellers who have not covered their positions. See also Selling Short.

Wikipedia: Short squeeze
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In finance, a short squeeze is a rapid increase in the price of a stock that occurs when there is a lack of supply and an excess of demand for the stock.

Short squeezes result when short sellers cover their positions on a stock. This can occur if the price has risen to a point where short sellers must make margin calls, or more loosely if short sellers simply decide to cut their losses and get out. (This may happen in an automated manner for example if the short sellers had previously placed stop-loss orders with their brokers to prepare for this eventuality.) Since covering their positions involves buying shares, the short squeeze causes an ever further rise in the stock's price, which in turn may trigger additional margin calls and short covering.

Short squeezes are more likely to occur in stocks with small market capitalization and small floats, although can involve large stocks and billions of dollars, as happened in October 2008 when a short squeeze temporarily drove the shares of Volkswagen on the Xetra dax from 210.85 euros to over 1000 euros in less than two days, briefly making it the most valuable company in the world.[1]

The opposite of a short squeeze is the less common long squeeze.

This can also apply to futures contracts.

See also

References

External links and sources


 
 
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Investment Dictionary. Copyright ©2000, Investopedia.com - Owned and Operated by Investopedia Inc. All rights reserved.  Read more
Financial & Investment Dictionary. Dictionary of Finance and Investment Terms. Copyright © 2006 by Barron's Educational Series, Inc. All rights reserved.  Read more
Wikipedia. This article is licensed under the Creative Commons Attribution/Share-Alike License. It uses material from the Wikipedia article "Short squeeze" Read more