This does not necessarily imply naked short selling, since shorted shares are put back onto the market, potentially allowing the same share to be borrowed multiple times. Borrow, buy and sell timing can lead to more than 100% of a company's shares sold short. This dynamic can result in a cascade of stock purchases and an even bigger jump of the share price. Purchasing the stock to cover their short positions raises the price of the shorted stock, thus triggering more short sellers to cover their positions by buying the stock i.e., there is increasing demand. Short squeezes result when short sellers of a stock move to cover their positions, purchasing large volumes of stock relative to the market volume.

Short-sellers might then be triggered to buy the shares they had borrowed at a higher price, in an effort to keep their losses from mounting should the share price rise further. However, an unexpected piece of favorable news can cause a jump in the stock's share price, resulting in a loss rather than a profit. As the shares were borrowed, the short-seller must eventually return them to the lender (plus interest and dividend, if any), and therefore makes a profit if they spend less buying back the shares than they earned when selling them. Short selling is a finance practice in which an investor, known as the short-seller, borrows shares and immediately sells them, hoping to buy them back later ('covering') at a lower price.

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