Short Squeeze

When short sellers in a security are forced to cover due to a rising price. Their covering causes the security’s price to rise even more.

Short squeezes happen sometimes when an institution with a large short position is made known to market participants and prices are driven higher by buyers in anticipation that the short seller will eventually have to cover, which they can then sell into. This was seen in copper in 2006, when a rogue trader allegedly placed a large short order against copper for China.

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