Short Squeeze
Rising prices force short sellers to buy back, pushing prices higher still.
What is Short Squeeze?
When a heavily shorted stock rises, shorts face losses and margin calls. Their forced buying to close positions adds demand, driving the price up further and squeezing remaining shorts. A reflexive feedback loop, not a valuation event.
Short Squeeze: a worked example
A stock with 40% of its float sold short jumps 20% on news; forced covering carries it another 60% with no change in fundamentals.
More terms in Positions & Trade Mechanics
Long Position
You own the asset and profit when its price rises.
Short Position (Short Selling)
You borrow shares, sell them, and profit if the price falls.
Margin
Borrowing from your broker to buy securities, using the account as collateral.
Cash Account
An account where every purchase is paid for in full, no borrowing.
Leverage
Using borrowed money to increase exposure relative to your own capital.
Initial Margin (Reg T)
The equity you must put up to open a margin position - generally 50%.
Maintenance Margin
The minimum equity percentage you must keep in a margin account.
Margin Call
A demand to add cash or securities after equity falls below maintenance.