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Trading and Investment Terminology

Short Squeeze

A short squeeze could spell disaster for short-sellers unless they act quickly.

short squeeze is a situation in which a stock's price increase triggers a rush of buying activity among short-sellers. 

Short sellers must buy stock to close out their short positions and cut their losses, which results in a further increase in stock prices, which compels still more short sellers to cover their position.

 

They can also be damaging for traders who are shorting a stock with financial derivatives like spread bets and CFDs. 

This is because derivatives traded with leverage that can increase both your profits and losses. 

This is especially true during a short squeeze or similar scenario where markets behave in an unexpected way.

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