What is a short squeeze?

$AMC Preferred Equity Unit (APE.US)$ $AMC Entertainment (AMC.US)$ $GameStop (GME.US)$ $Bed Bath & Beyond Inc (BBBY.US)$ Stock traders can make a profit from the falling price of a security by short selling. A trader opens a short position by borrowing a company’s shares in anticipation that it will fall in price. They then sell the borrowed shares and buy them back after the share price has fallen.

Short selling does not always go according to plan. If the market goes against the short seller’s position, a heavily shorted stock may rise and force short sellers to cut their losses and exit their positions.

Short sellers rushing for the exit have to buy shares from the market, which can result in a further rise in the price. Rising asset prices attract new buyers. This combination of new buyers and panicked short sellers boosts demand, resulting in a short squeeze.