short squeeze investment & finance definition

The situation that occurs when an investment’s price begins to rise rapidly, and short sellers of that investment (those that have sold stock on the expectation that it will go lower) scramble to purchase it in an attempt to cover their positions and reduce their losses. The increased buying activity of the short sellers leads to higher prices, causing other short sellers to scramble to cover their positions, thus driving prices still higher. These actions also increase the losses incurred by short sellers who have not yet covered their positions. A short squeeze is not exclusive to stock traders, but commonly is seen in the futures market, as well as other markets.