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- Fortrade’s Online Academy / Glossary of Terms / Short Squeeze
Short Squeeze
Definition of Short Squeeze
What is a short squeeze?
A short squeeze happens when traders who took a short (sell) position, are squeezed into buying back assets at a higher rate than they had hoped to, thus creating an even sharper spike in the price of that asset.
Essentially a short squeeze occurs when traders have anticipated that an asset price would drop, so they sold the asset at a higher rate and with the expectation of buying it back at the lower rate for a healthy profit. However, if the market proves to be surprisingly bullish and the asset price continues to rise, some traders may panic and close their position, even at the higher price, in order to limit their losses. In doing so, they cause the demand of that asset to be even greater than it already was, thus driving the price even higher.
How does a short squeeze affect forex traders?
The short squeeze is basically a situation in which a trader is able to cut his losses, but at the same time, he is helping to ensure that the asset in question will remain unavailable at the lower price that he had anticipated for some time to come. A short squeeze is not considered ideal for traders by any stretch of the imagination, but it does help them avoid something even more unpleasant.
Links related to Short Squeeze
Bullish /Bull Market
Buy
Close a position
Sell
