Short selling allows traders to profit off an asset\u2019s price decline. It\u2019s 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 \u201ctrapped\u201d and quickly rush to the exit to try and cover their positions.Naturally, if you\u2019d like to understand what a short squeeze is, you\u2019ll need to understand what shorting is first.If you\u2019re not familiar with shorting and how it works, check out What is Shorting In the Financial Markets?.In this article, we\u2019ll 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\u2019s something else\u2026<\/p>","protected":false},"excerpt":{"rendered":"
Short selling allows traders to profit off an asset\u2019s price decline. It\u2019s a very common way to manage downside risk, hedge existing holdings, or simply express [\u2026]<\/span><\/p>","protected":false},"author":0,"featured_media":2796,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[35],"tags":[],"_links":{"self":[{"href":"https:\/\/afluxcoin.com\/es\/wp-json\/wp\/v2\/posts\/4278"}],"collection":[{"href":"https:\/\/afluxcoin.com\/es\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/afluxcoin.com\/es\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/afluxcoin.com\/es\/wp-json\/wp\/v2\/comments?post=4278"}],"version-history":[{"count":0,"href":"https:\/\/afluxcoin.com\/es\/wp-json\/wp\/v2\/posts\/4278\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/afluxcoin.com\/es\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/afluxcoin.com\/es\/wp-json\/wp\/v2\/media?parent=4278"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/afluxcoin.com\/es\/wp-json\/wp\/v2\/categories?post=4278"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/afluxcoin.com\/es\/wp-json\/wp\/v2\/tags?post=4278"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}