Short Selling and Short Squeeze

April 26, 2016

Short Selling

In general, short selling is a gamble where stocks have a rising effect. Within a long period, most stocks surge in price. Although a company barely developed over the years, price increase should inspire its stock price increase to some degree. This means that shorting is making a gamble in contradiction of the general course of the market. As a result, if the direction is frequently increasing, holding a short position open for extended period can become very dangerous.

Short Squeezes

If stock prices increase short seller, losses increase, as the sellers hurry to purchase the stocks to cover their positions.

The perseverance creates an increase of needs for the stock quickly driving up the price.

Normally, news in the market will make a short squeeze, but sometimes traders who notice a big amount of shorts in a stock will try to make one. This is the main reason why it is not a good idea to short a stock with high short interest. A short squeeze is a great method to quickly drop a lot of money.

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