10 Things You MUST Know Before Shorting a Stock
Michael Shulman, September 9, 2009
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#8 The Short-Squeeze
You have probably heard this term more often than you care to remember. A short squeeze is a market event when the price of a stock rises quickly, prompting shorts to "cover" -- which means they must buy the stock in the open market to repay the shares they have borrowed.
This generates higher prices, which, in turn, prompts more people to sell and take a profit, which leads to brokers calling more loans, which then forces many short-sellers to go into the open market to cover their loans, and so on. Short squeezes can be ferocious, can last quite a while and can be very expensive.
Learn more about the dangers of short squeezes.
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