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Published On: Wed, Feb 20th, 2013

Short Squeeze

A Short Squeeze is the time when a security rises in value rapidly which then causes the short holders of the security to lose money quickly.

For example, XYZ stock has risen 5% in the past week which has caused the short holders of XYZ stock to lose money at the same rate.  During the short squeeze many short holders of XYZ stock will reverse their short positions in XYZ stock and go long XYZ stock.  The effect of many short sellers reversing their positions and then going long the same stock has causes the price of XYZ to rise that much faster, which in turn creates an even greater loss for the short holders of XYZ.  These short XYZ holders will then go long XYZ, forcing the price higher yet, on and on until the short holders are “squeezed” out of their positions.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.

 

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