Definitions

April 12, 2021

Short: A short is the opposite of traditional investment, where instead of investing in a company based on a prediction that the stock will rise, traders predict that a company’s stock will fall based on market trends. When shorting a stock, investors bet that the stock will drop in price and profit if their prediction comes true.

Short Squeeze: A short squeeze is a dramatic increase in a stock’s price in a short period of time after it has been shorted. Those that had bet on the price to fall, or shorted the stock, will lose money for making the wrong prediction. Click here for a detailed explanation of short squeezing.

Hedge fund: A hedge fund is a group of investors who use pooled funds to make high-risk investments while attempting to maximize their profits and reduce their risk from trading. In the GameStop incident, many hedge funds decided to short GME because its stock steadily fell at the beginning of the pandemic.

U.S. Securities and Exchange Commission (SEC): The SEC is a government agency that aims to protect investors in the free market from those who violate federal securities laws.

Stockbroker: A stockbroker is a financial advisor that makes trades for individuals.

Market manipulation: Market manipulation is an action that disrupts the fair and free operation of the stock market.

Zero commission brokers: Zero commission brokers are often applications that allow traders to buy and sell stocks without paying for brokerage services.

Emotional buying: Emotional buying is when investors purchase and sell stocks based on their emotions (usually fear or greed).

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