{"id":37681,"date":"2022-08-05T17:30:34","date_gmt":"2022-08-05T14:30:34","guid":{"rendered":"https:\/\/forklog.com\/en\/?p=37681"},"modified":"2025-08-29T20:01:40","modified_gmt":"2025-08-29T17:01:40","slug":"what-is-a-short-squeeze","status":"publish","type":"post","link":"https:\/\/forklog.com\/en\/what-is-a-short-squeeze\/","title":{"rendered":"What is a short squeeze?"},"content":{"rendered":"<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">Key points<\/h2>\n<ul class=\"wp-block-list\">\n<li>A short squeeze is a surge in an asset\u2019s price triggered by a heavy build-up of short positions; closing those shorts requires buying, which adds demand and drives the price higher still.<\/li>\n<li>Short squeezes feature rapid price increases, elevated trading volumes and high volatility\u2014often inflicting heavy losses on short sellers.<\/li>\n<li>To curb the risk of being caught in a squeeze, use stop orders and hedging tools, and keep leverage low.<\/li>\n<\/ul>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">What is a short position<\/h2>\n<p>Before discussing a short squeeze, it helps to define a short position. When opening a short, a trader borrows an asset from a broker or exchange, posting their own funds as collateral. The position is closed by buying back the same quantity of the asset at the prevailing price. Profit arises if the asset\u2019s price falls.<\/p>\n<p>For example, a trader opens a short for 1 BTC at $30,000 per coin. After a while the bitcoin price falls to $25,000, and the trader buys back the borrowed asset. The difference between the selling and repurchase prices\u2014$5,000\u2014is the profit.<\/p>\n<p>If the asset\u2019s price rises after the short is opened, the position incurs losses. If the trader lacks sufficient funds to cover them, a margin call ensues, which can lead to forced closure (liquidation) of the position.<\/p>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">How a short squeeze forms<\/h2>\n<p>One key cause is a dense cluster of open shorts at a given price level. As quotes move higher, traders are forced to manage risk and close losing positions.<\/p>\n<p>Because closing a short requires buying the asset, rising prices only increase demand. That in turn propels the price further up, deepens losses for short holders and can produce mass liquidations.<\/p>\n<p>The automated nature of modern trading, bouts of panic and heavy volumes can produce outsized spikes\u2014sometimes tens of percent. In some cases, a squeeze can even trigger trading halts.<\/p>\n<p>A similar episode occurred on Nasdaq with shares of Robinhood Market\u2014volatility forced three trading halts.<\/p>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">Examples<\/h2>\n<p>Short squeezes occur across markets, including crypto. Two examples follow.<\/p>\n<h3 class=\"wp-block-heading\">GameStop<\/h3>\n<p>In November 2020 members of the WallStreetBets subreddit spotted short positions held by the hedge fund Melvin Capital in the shares of GameStop (GME), a retailer then near insolvency.<\/p>\n<p>Online \u201cactivists\u201d decided to exploit the discovery, piling into GME on the exchange to keep the company from collapse. The effort went viral; in under a month GameStop\u2019s shares rose more than 20-fold.<\/p>\n<p>According to <a href=\"https:\/\/forklog.com\/en\/news\/robinhood-at-the-centre-of-the-gamestop-dogecoin-and-reddit-trader-scandal\">calculations<\/a> by the Wall Street Journal, the squeeze wiped out 30% of Melvin Capital\u2019s capital, and aggregate losses for GME short sellers reached $19.75bn.<\/p>\n<h3 class=\"wp-block-heading\">Celsius Network<\/h3>\n<p>In June 2022 the crypto lending platform Celsius froze withdrawals, swaps and transfers between accounts due to extreme market conditions. The move sent its CEL token sharply lower.<\/p>\n<p>A group of enthusiasts used Twitter to attempt a GameStop-style squeeze, rallying around the hashtag #CELShortSqueeze.<\/p>\n<p>According to <a href=\"https:\/\/decrypt.co\/103406\/celsius-up-50-amid-gamestop-style-short-squeeze-attempt\" target=\"_blank\" rel=\"noreferrer noopener\">Decrypt<\/a>, the key argument for a squeeze was Celsius\u2019s halt of withdrawals, including CEL tokens. On top of that, the firm\u2019s financial troubles were expected to attract short interest from traders and larger players.<\/p>\n<p>The plan was to buy CEL on exchanges and move it to cold wallets so no one could use those tokens to sell. As a result, between 19-21 June 2022 CEL nearly tripled\u2014from $0.55 to $1.50.<\/p>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">How to protect yourself from a short squeeze<\/h2>\n<p>Squeezes are common in crypto, given the thin liquidity of many assets, limited hedging tools and weak legal frameworks. To mitigate the risk, consider:<\/p>\n<ul class=\"wp-block-list\">\n<li>Stop order. The simplest and most effective tool. It shields an open short from full liquidation and helps avoid emotional decisions.<\/li>\n<\/ul>\n<ul class=\"wp-block-list\">\n<li>Hedging. When opening a short, hedge it with an offsetting trade: if you are short, open a long on the same asset. If prices move against you, the hedge helps reduce losses.<\/li>\n<\/ul>\n<ul class=\"wp-block-list\">\n<li>Spot trading. Spot markets avoid any debtor\u2013creditor relationship between trader and platform\u2014eliminating liquidation risk. Spot trades are not designed to profit from falling prices, but they remove many risks, especially for beginners.<\/li>\n<\/ul>\n<ul class=\"wp-block-list\">\n<li>Low leverage. Traders often use high leverage, which multiplies the risk of financial loss. According to Binance, in 2019 some 60% of futures positions were opened with 20x leverage, a high ratio. As Morgan Creek founder Mark Yusko said, leverage \u201cnever makes bad investments good, but often leads to good investments becoming bad\u201d.<\/li>\n<\/ul>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">Further reading<\/h2>\n<p>How does the Fed\u2019s rate affect the price of bitcoin?<\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/news\/what-is-cryptocurrency-arbitrage\">What is crypto arbitrage?<\/a><\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/news\/where-to-track-cryptocurrency-prices\">Where to track cryptocurrency prices?<\/a><\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/news\/what-is-the-mvrv-indicator\">What is the MV<\/a><a href=\"https:\/\/forklog.com\/en\/news\/what-is-the-mvrv-indicator\">R<\/a><a href=\"https:\/\/forklog.com\/en\/news\/what-is-the-mvrv-indicator\">V indicator?<\/a><\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/news\/what-is-a-moving-average-and-how-is-it-used-in-crypto\">What is a moving average and how is it used for crypto?<\/a><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>What is a short squeeze? How does it arise? What can reduce the risk of losses? Explained in cards.<\/p>\n","protected":false},"author":1,"featured_media":37682,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"select":"1","news_style_id":"1","cryptorium_level":"2","_short_excerpt_text":"","creation_source":"","_metatest_mainpost_news_update":false,"footnotes":""},"categories":[2113],"tags":[2118,1267,1145],"class_list":["post-37681","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cryptorium","tag-101-trading-and-investing","tag-cryptocurrency-trading","tag-market-analysis"],"aioseo_notices":[],"amp_enabled":true,"views":"125","promo_type":"1","layout_type":"1","short_excerpt":"","is_update":"","_links":{"self":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/37681","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/comments?post=37681"}],"version-history":[{"count":1,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/37681\/revisions"}],"predecessor-version":[{"id":37683,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/37681\/revisions\/37683"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/media\/37682"}],"wp:attachment":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/media?parent=37681"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/categories?post=37681"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/tags?post=37681"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}