economy - long squeeze

shahar

shahar

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Can someone describes to me what the meaning of long squeeze in economics?
What is the algebraic operation we do by it?
 
A long squeeze is a sudden drop in the price of an asset. It creates pressure on those who have a long position (those who benefit from a price increase) to sell to mitigate further losses.

Your second question is unclear. Do you have a specific example?
 
BigBeachBanana said:
A long squeeze is a sudden drop in the price of an asset. It creates pressure on those who have a long position (those who benefit from a price increase) to sell to mitigate further losses.

Your second question is unclear. Do you have a specific example?
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O.K. Please, ignore the second equation.

Thanks.
 
BigBeachBanana said:
A long squeeze is a sudden drop in the price of an asset. It creates pressure on those who have a long position (those who benefit from a price increase) to sell to mitigate further losses.

Your second question is unclear. Do you have a specific example?
Click to expand...
Can you explain what is long squeeze? And what the difference between these two?
 
It is not a mathematical operation at all. It is a description of an economic process in speculative markets.

The price of an asset falls. This may induce some long-term investors to sell and thereby add to available supply and reduce the asset’s price even further. Nothing, however, forces long-term investors to sell so the term “squeeze” is not really appropriate though often used. The situation is different with speculators who borrowed money on a secured basis to acquire the asset. Those speculators must either increase the collateral supporting the loan or sell the asset. Those speculators who do not have sufficient additional collateral must sell. This is what makes it a “squeeze”: some speculators have no option, and their forced actions further depress the price of the asset.

What two? Are you asking about a short squeeze.
 
shahar said:
Can you explain what is long squeeze? And what the difference between these two?
Click to expand...
Do you mean short squeeze?

  • A short squeeze is a sudden increase in the price of an asset. It creates pressure on those who have a short position (those who benefit from a price decrease) to sell to mitigate further losses. Those who hold short positions are called short sellers.
  • A long squeeze is a sudden decrease in the price of an asset. It creates pressure on those who have a long position (those who benefit from a price increase) to sell to mitigate further losses. This is a more common and less risky practice than short-selling, aka the "Buy low, sell high" mentality.
 
shahar said:
What is the meaning of the word mitigate?
Click to expand...
To reduce or lessen.

In this context, it means to stop further losses from occurring.
For example, let's say you have a long position in a stock at the price of $10, suddenly the price dropped down to $5. You're afraid that the stock will drop even further down to $0. So to mitigate further losses, you sell the stock at $5 and lose $5 instead of selling it at $0 for a loss of $10.
 
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