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The news in the market for a few days is about Gamestop stock. The price went upto $150 today, and the reason mentioned by the news is that it is a short squeeze. What is short squeeze? Does it happen to all stocks?

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It is quite simple. Many many people are short. The price goes up. That can lead to a short squeeze.

How?

People that are short lose money. At some point the broker liquidates their short position - which puts buy pressure at the market (as the broker is buying the outstanding shares at market price). WIth enough people short, this generates enough buying pressure to push the price up, liquidating even more people. The result is an extremely violent upward move as an avalanche of short positions get liquidated.

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  • Another question if you can answer. Why this price movement don't happen to stocks like Apple, Microsoft etc... – wonderful world Jan 30 at 13:40
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    Ah,because those are not failing businesses that people with more money than risk management decided to brutally overshort. – TomTom Jan 30 at 13:55

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