Short Squeezes

A short squeeze happens when rising prices force short sellers to buy, pushing prices even higher. Here is how squeezes unfold, the famous GameStop and Volkswagen cases and the warning signs.

A feedback loop

When a heavily shorted stock rises, short sellers face growing losses and margin calls. As they buy to cover, their buying pushes the price higher, forcing more shorts to buy. The loop can drive a stock far above any reasonable value, briefly.

Forced buying overwhelms available sellers.

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