it is against the law to sell a stock you don’t have and doesn’t exist, which is what naked short selling amounts to. If you borrow a stock from your broker he gets it from a clearing house and lets you sell it. That’s all legal and not a bad thing. Of course you have to return it when certain conditions obtain, such as a sudden rise in value which cam make the value of your debt skyrocket. Then the broker calls and tells you you need to buy the stock back so he can replace it where he got it from. That’s known as a margin call. When a bunch of people decide to artificially drive up the value of the stock just to create this situation, that’s what is known as a short squeeze. squeezing the guy who sold short.
” Then the broker calls and tells you you need to buy the stock back so he can replace it where he got it from. That’s known as a margin call.”
You don’t have to buy back with a margin call. If you don’t satisfy the margin call the broker can buy or sell your assets to satisfy margin requirements.