Definition – What does Bear Squeeze mean?
A bear squeeze is a trading situation where traders holding short positions in a currency are faced with an overall appreciation in the currency’s value. As the trading losses increase, traders close out short positions.
ForexTerms explains Bear Squeeze
A bear squeeze in forex is different from a bear squeeze in stocks because the size of the market is so much larger and the system of trading isn’t the same. In the stock market, a trader must buy his way out of a short position by covering it – that is, buying the stock he was shorting.
In the forex market, a trader is always working in pairs. This means that a trader hasn’t shorted a currency in the traditional sense. Instead, he sells one currency to buy the other. So, the currency trader has entered a losing trade, but he doesn’t need to buy the currency he is shorting in order to close out the trade – he merely sees the value of his account fall according to how much he lost on the trade. There isn’t the same amount of momentum created by shorts closing out positions in forex as there is in the stock market.