A short squeeze is the situation of increase in the price of the stock which stimulates the short sellers to cover their position. As such, there is a further rapid increase in the price of the stock on account of less supply and more demand. Literally, it means that short sellers are squeezed out of the market.
When a person engages in short selling he is anticipating the stock prices to fall so that he could maximize his profit. Here the seller does not own the stock but promises to deliver it at a future point of time. The sellers borrow the stock from the broker who might lend the shares from his own stock or from the stock of his account holders.
Now if the prices of the stock start to rise as against anticipated fall and go beyond the original sale price, the sellers need to buy back the shares as soon as possible to minimize their losses. At this position, there are a large number of short sellers together pushing the demand for stock which leads to increase in prices of the share furthermore.
A short squeeze is mostly driven by market news and unexpected rise I price of shares. However, traders can create a short-squeeze situation if there is an inventory of stock lying to be sold.
To be able to predict short squeeze one needs to have information about short interest percentages and interests and market trends. By successfully predicting a short squeeze, one can take up the role of a short squeezer and gain on the loss of short sellers. As a short squeezer one needs to predict the time frame of a short squeeze situation and sell the stock when itβs at its peak.
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Speculation in the share market might lead to large risk involvement.One of the examples has been illustrated in the above post. One must take the advice of any economic guru in that matter.
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