In practice
To short a stock, a fund borrows shares and sells them, planning to buy them back later and return them. A squeeze is more likely when many investors are short and few shares are available to borrow. Margin calls and limits on losses can then force sales or purchases regardless of a fund’s view.
An example
Round numbers, not a real fundSay a fund borrows and sells shares at $10, hoping to buy them back cheaper. If they reach $30 and its lender wants more collateral, it may have to buy at $30.
Why it matters
Losses on a short position have no fixed limit, so a squeeze can do serious damage to a hedge fund in days.
Video
35 seconds, with soundA definition, not advice; where usage varies the entry says so.
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