Short squeeze

Short selling is when an investor bets that a stock will go down in price. The investor borrows the stock from a large holder, sells it, and plans to buy it back cheaper and return it when the stock has dropped in price, pocketing the difference as profit.

When a large number of short sellers target the same stock and there is a price rise or a multiple lender calls in all its shares in the stock at once, the short sellers have to buy the shares back to cover their positions and avoid greater losses.

Their sudden high level of demand forces the share price to rise suddenly and dramatically. This self-perpetuating circle is known as a ‘short squeeze’.

Merryn

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