How markets work
Short squeeze
A sharp price rise caused by short sellers being forced to buy back at once.
How it works
When a heavily shorted share rises, short sellers face losses and margin calls. Closing a short means buying, which pushes the price higher, which forces more shorts to close — a feedback loop.
Squeezes are driven by positioning rather than by anything about the business, which is why they can carry a price far above any defensible valuation and then collapse.
Where it misleads people
A squeeze is not evidence the company is good. It is evidence the trade was crowded. The two get confused constantly, usually at the top.
Related terms
- Short sellingBorrowing a security, selling it, and hoping to buy it back cheaper before returning it.
- Short interestThe number of a company’s shares currently sold short, often shown as a percentage of the free float.
- Margin callA demand from your broker to add cash or sell holdings, because your account equity has fallen too low.
- VolatilityHow much an investment’s returns bounce around their average — the standard measure of risk.
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