Short Squeeze

A short squeeze is a trading phenomenon that occurs when investors with short positions are forced to close their positions. If the value of the shorted asset increases significantly, short positions will lose much of their value. The short positions will eventually be forced to close their positions to prevent further losses. In order to close the positions the shorts will need to buy back the asset, increasing the demand and price of the asset. The increased price can have a domino effect, forcing additional shorts to close their positions which in turn increases the price further. The rapid price rise from a short squeeze that comes as a result of already elevated prices results in extreme trading conditions for an asset. Assets experiencing a short squeeze can have their prices deviate significantly from the underlying value of the asset. Short squeezes also result in significant volatility.