零点课堂 | What Is a Short Squeeze?（1）

taotao 深度 2021年3月4日
5.49K 0

Short selling allows traders to profit off an asset’s price decline. It’s a very common way to manage downside risk, hedge existing holdings, or simply express a bearish outlook on the market.

However, shorting can be an exceptionally high-risk trading strategy at times. Not only because there is no upper limit for the price of an asset, but also due to short squeezes. A short squeeze can be described as a sudden price increase. When it occurs, many short sellers get “trapped” and quickly rush to the exit to try and cover their positions.

Naturally, if you’d like to understand what a short squeeze is, you’ll need to understand what shorting is first. In this article, we’ll discuss what a short squeeze is, how you can prepare for it, and even profit off it in a long position.

What is a short squeeze?

A short squeeze happens when the price of an asset sharply increases due to a lot of short sellers being forced out of their positions.

Short sellers are betting that the price of an asset will decline. If the price rises instead, short positions start to amass an unrealized loss. As the price goes up, short sellers may be forced to close their positions. This can occur via stop-loss triggers, liquidations (for margin and futures contracts). It can also happen simply because traders manually close their positions to avoid even greater losses.

So, how do short sellers close their positions? They buy. This is why a short squeeze results in a sharp price spike. As short sellers close their positions, a cascading effect of buy orders adds more fuel to the fire. As such, a short squeeze is typically accompanied by an equivalent spike in trading volume.

Here’s something else to consider. The larger the short interest is, the easier it is to trap short sellers and force them to close their positions. In other words, the more liquidity there is to trap, the greater the increase in volatility may be thanks to a short squeeze. In this sense, a short squeeze is a temporary increase in demand while a decrease in supply.

The opposite of a short squeeze is a long squeeze – though it’s less common. A long squeeze is a similar effect that happens when longs get trapped by cascading selling pressure, leading to a sharp downward price spike.

声明：本文由 Binance撰写，零点财经收录，观点仅代表作者本人，绝不代表零点财经赞同其观点或证实其描述。

本文由 零点财经 作者：tao 发表，其版权均为 零点财经 所有，文章内容系作者个人观点，不代表 零点财经 对观点赞同或支持。如需转载，请注明文章来源。
分享生成图片
♥赞46

相关文章

发表回复

零点课堂 | What Is a Short Squeeze?（1）

2021-03-04 14:23:22

Short selling allows traders to profit off an asset’s price decline. It’s a very common way to manage downside risk, hedge existing holdings, or simply express a bearish outlook on the market.

However, shorting can be an exceptionally high-risk trading strategy at times. Not only because there is no upper limit for the price of an asset, but also due to short squeezes. A short squeeze can be described as a sudden price increase. When it occurs, many short sellers get “trapped” and quickly rush to the exit to try and cover their positions.

Naturally, if you’d like to understand what a short squeeze is, you’ll need to understand what shorting is first. In this article, we’ll discuss what a short squeeze is, how you can prepare for it, and even profit off it in a long position.

What is a short squeeze?

A short squeeze happens when the price of an asset sharply increases due to a lot of short sellers being forced out of their positions.

Short sellers are betting that the price of an asset will decline. If the price rises instead, short positions start to amass an unrealized loss. As the price goes up, short sellers may be forced to close their positions. This can occur via stop-loss triggers, liquidations (for margin and futures contracts). It can also happen simply because traders manually close their positions to avoid even greater losses.

So, how do short sellers close their positions? They buy. This is why a short squeeze results in a sharp price spike. As short sellers close their positions, a cascading effect of buy orders adds more fuel to the fire. As such, a short squeeze is typically accompanied by an equivalent spike in trading volume.

Here’s something else to consider. The larger the short interest is, the easier it is to trap short sellers and force them to close their positions. In other words, the more liquidity there is to trap, the greater the increase in volatility may be thanks to a short squeeze. In this sense, a short squeeze is a temporary increase in demand while a decrease in supply.

The opposite of a short squeeze is a long squeeze – though it’s less common. A long squeeze is a similar effect that happens when longs get trapped by cascading selling pressure, leading to a sharp downward price spike.

声明：本文由 Binance撰写，零点财经收录，观点仅代表作者本人，绝不代表零点财经赞同其观点或证实其描述。