Short squeeze
A short squeeze is a market event that happens when a heavily shorted stock has rapid price increase, forcing short sellers to buy shares to cover their positions, which further drives up the price, or to exit their positions and cut their losses.
When an investor shorts a stock, they're forecasting the price will decline. But if the stock rises instead, they need to buy shares to close their short position and limit losses. This buying pressure can push the price even higher, forcing more short sellers to cover.
Short selling carries risk because there's no ceiling on how high a stock price can rise. When a heavily shorted stock begins climbing instead of falling, short sellers face mounting losses. As the price increases, they may receive "margin calls" from their brokers, requiring them to either deposit more money or close their positions.
We acknowledge and thank the FMA, Dr Karena Kelly and Brook Taurua Grant, the RBNZ and the Māori Dictionary for their research which helped us with te Reo Māori kupu for this glossary.
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