So when GameStop started gaining, these short-sellers were caught in what's called a short squeeze.

Unlike most investors, who want their stocks to appreciate, short-sellers make money when stock prices go down and lose money when they go up. This was bad news for short-sellers, who had bet the stock would keep falling. In late January 2021, shares of a company called GameStop (GME) stock, which had been trading around $2.57 per share, suddenly shot up, eventually as high as $500 - when users of the Reddit website subgroup Wall Street Bets began buying up shares. The downsides of a short squeeze are significant, making shorting a stock a very risky strategy for all but the most experienced traders. Quick tip: Additional pressure on the short seller can come from the original owner (broker) of the stock who can force the trader to return the stock at any time. Shorting a stock involves borrowing the stock, usually from a broker, and selling it now in hopes of buying it back later for less in order to make a profit.Ī short squeeze is when a shorted stock's price goes up instead of down, forcing the short seller to decide between covering their position by continuing to pay interest on the borrowed shares in hopes the price will go down or exiting their position by buying shares at the new higher price and returning them at a loss.

A short squeeze is a stock market phenomenon, something that happens to investors and traders who have acted on the assumption that an asset (a stock, usually) is going to fall - and it rises instead.

Short squeeze meaning