What does squeeze mean in stock market

A 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 compel still more short sellers to cover their positions.

An investor borrows shares of Company XYZ from a broker and sells them at the market price. The investor hopes to buy back the shares at a lower price in the future, thereby "covering" the position by giving back the broker his shares. A short squeeze occurs when the stock 's price doesn't decline as anticipated.

Now you're in trouble. You need to cover your position and limit your losses.

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You decide to buy Company XYZ shares as soon as possible--you and everybody else who shorted the stock. This generates tremendous buying pressure on the stock, and the short sellers rushing to cover their positions only escalate the price increase.

Short selling can be a smart way to hedge a portfolio, take advantage of a down market , or capitalize on knowledge of a certain stock. However, selling short is a very aggressive and risky investment. After all, with a regular stock purchase, an investor can only lose the original investment as the stock falls to zero.

But in theory, a stock's upside price potential is unlimited. The investor can end up on the hook for more than his original investment. Short squeezes occur more often in small-cap stocks with small floats, but they can occur with any stock.

Investors should pay attention to the short interest ratio of a particular stock and the number of shares sold short relative to the float--those with high short-interest ratios are often more susceptible to a squeeze.

Short Squeeze The Last Drop Of Profit From Market Moves

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