Triggering The Short Squeeze With Sell Limit Orders

February 01, 2021


Written by Damyan I write this stuff. Enjoy You should follow them on Twitter

Warning: This is NOT financial advice. Always do your due diligence before making an investment decision.

This week we will likely see the culmination of the entire r/WallStreetBets vs Wall Street Saga. To recap last week r/WallStreetBets succeeded in rallying millions of investors, all around the globe to invest in $GME, $AMC, $BBBY, $BB, $NOK, and other heavily shorted stocks. With the intent of taking down the hedge-funds shorting these stocks. The campaign is more successful than anyone would have imagined. A lot of new investors became millionaires overnight. And of course, this can’t last too long. The rich and powerful pulled some strings while Redditors were deep in their pockets. And we saw the most blatant market manipulation in recent memory.

Robinhood Trading App

Robinhood decided to limit retail investors from buying these stocks. In some cases, they even closed people’s positions without their consent. The excuse they used? Protecting their customers from volatility. Which is a stupid excuse. As they weren’t actually losing money. But rather they were raking in hundreds of thousands of dollars. It is clear to absolutely everyone Robinhood is protecting hedge-funds, not their customers. Despite this illegal market manipulation Gamestop stock, AMC stock is up pre-market today and the squeeze is still expected. And retail investors have a new weapon in this battle.

Sell Limit Order

When you buy a stock from a broker, that broker lends your stock to institutions and others for shorting. This is how brokers work every day. Hedge-funds of course use illegal shorting practices like naked shorting. Or shorting the stock without first borrowing the stock. But with the recent developments and the stoplight on the hedge-funds, it is riskier for them to be naked shorting. This is where sell limit orders come in. They allow you to sell your stock if a price of your choosing is reached. Automatically. And if your stocks have a sell limit order they are locked. Your stocks are waiting for a transaction. Meaning the brokers CANNOT provide them to the hedge-funds to be shorted. Limiting the number of shares they can short.

Triggering the short


The more people who set a sell limit order, the fewer stocks can be shorted. If enough people lock in their shares there is over a 50% chance for hedge-funds to get squeezed. Melvin Capital, a key figure in this drama, has already lost $7 billion in January. Or 53% of its capital. Melvin Capital about to become Melvin NoCapital. But don’t feel too bad for the CEO. The last time his hedge-fund blew up he was expanding his $44 million Miami beachfront mansion.

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Read the story on WallStreetBets vs Wall Street here.

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