I've heard that many beginners get confused with the terminology, so I decided to figure out what a short squeeze is and why this phenomenon causes such a stir in the market.

In two words: a short squeeze is when an asset’s price suddenly shoots up, and traders who were betting on the decline ( and had opened shorts ) start panicking and closing their positions. The more people close at the same time, the higher the price jumps. You get a snowball effect.

How does it happen? First, traders are confident the price will fall and open short positions—they borrow the asset from a broker and sell it. Then, unexpectedly, something changes: good news comes out, big players start buying up, or volatility runs wild. The price starts rising, and short sellers find themselves at a loss.

Next comes the most interesting part. When losses grow, brokers begin forcibly closing positions. Traders are forced to buy back the asset at ever higher prices. This creates additional demand, the price rises even faster, even more people get liquidated, and you get a parabolic spike.

A classic example is GameStop in 2021. It was a real short squeeze in history. The price surged from $20 to $483 in just a few days thanks to mass purchases by retail investors. The crypto market also regularly goes through moments like this—especially when volatility runs wild and liquidations start cascading in a chain reaction.

If you’re following the market, here’s what you should pay attention to. First—the level of short positions. If the percentage of shorts is high, that can be a potential signal. Second—surges in liquidations on the futures market. When mass liquidations begin, a chain reaction can happen very quickly. Third—trading volumes. If volumes suddenly rise during an upward move, it could be the start of a squeeze.

Right now, the market situation is like this: BTC is trading around 70.96K, down 1.18% over the day; ETH is around 2.18K, down 3.12%; BNB is around 599.90, down 2.39%. There is volatility, so it’s especially important to watch short levels and liquidations.

Of course, all of this is for informational purposes only, not advice. Short squeezes are a powerful phenomenon that can bring both profits and losses. The key is to understand the mechanics and not forget about risk management.