To be an effective trader, you have to know the vocabulary.
The basics are what type of position you hold in a stock. There are basically two: long and short positions.
What Does Long (or Long Position) Mean?
The buying of a security such as stock, commodity or currency, with the expectation that the asset will rise in value.
An owner of shares in XYZ’s Corp. is said to be “long XYZ’s” or “has a long position in XYZ’s”. That person has bought the shares in the company in the belief that the stock price will go higher.
On the other side of the coin are the Short Positions.
What Does Short (or Short Position) Mean?
The sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value.
Keywords here: fall in value. Opposite of “long (or long position)”.
An investor will “buy a short position”. To do so, that investor must technically borrow the shares from a broker for a certain price. Once the investor “sells them” back to the broker, the gain/loss is determined.
What Does Naked Shorting Mean?
It is now illegal to do this. It refers to the the practice of short selling shares that have do not exist. Traders must borrow a stock, or determine that it can be borrowed, before they sell it short.
Naked shorting is illegal because it forces a stock price down because there is not the supply/demand of the physical shares.
What Does Short Squeeze Mean?
This occurs where this more demand for a stock, causing the stock price to go up. When this happens, traders with a short position will be forced to either sell their positions or cover by purchasing the stock. Eventually when enough “shorts” start to buy stock, the price of the stock will be pushed even higher.
Short squeezes occur more often in smaller cap stocks with small floats. A short squeeze is great for traders who are long, or looking for the share price to go up.
On the other side of the coin is what is called a Long Squeeze.
What Does Long Squeeze Mean?
The long squeeze is what happens when a stock’s price crashes. The saying, “everyone running for the door” applies here. As the stock price decreases, those with long positions will try to sell their positions to either take profits or avoid losses.
Hope this all makes sense to you. If you are new to trading you might need to read this three or four times to get it.