SteadySharesSteadyShares
Glossary
Trading

Short squeeze

A price spike caused by short sellers being forced to buy back at once.

Short sellers must eventually buy shares to close their position. If the price rises sharply, brokers demand more collateral, and shorts are forced to buy, which pushes the price up further, which forces more shorts to buy. A feedback loop.

It has nothing to do with the value of the underlying business, and everything to do with the mechanics of who is forced to act.

Figure

The loop that feeds itself

Price risesBroker demands collateralShort forced to buyBuying pushes price upsqueeze

None of this is a judgement about the company. It is a margin clerk executing a rule, and it stops the moment the forced buying runs out.

Why it matters

It explains the violent, apparently irrational moves in heavily shorted stocks.

The mistake everyone makes

Mistaking a squeeze for a re-rating. When the forced buying stops, so does the move.

Related terms

Short selling
Betting a price will fall, by selling shares you have borrowed.
Margin call
Your broker demanding more money, at the worst possible moment.

See Short squeeze on a real company

SteadyShares pulls this straight from the filings for 1,100+ companies, alongside moat scores, DCF fair value and peer comparison. Free to look around.

Open SteadyShares