Here's the gist, in simplified terms. I assume you understand what stock and stock brokers are...
You can 'short' a stock that you think is going to lose value (e.g. you expect a major earnings miss to be reported).
Shorting a stock means you borrow a share from (generally) your broker at todays price. You then sell that share to someone else for market price. At a determined date, you have to buy another share at market rate and give it back to your broker (this is called 'covering' your short).
If you bet right, you borrowed a share, and sold it for $N. Then, at a future date, when the price fell, you bought for $N-X, and gave the share back to your broker. You just made $X, the price difference from the value of the stock falling.
If you bet incorrectly, you borrowed a share, and sold it for $N. Then, at the future date, the price is actually higher, and you have to buy a share at $N+X, AND give the share back to your broker. You just lost $X, the price difference from the value of the stock rising.
If you bet REALLY wrong, the $+X factor can get really high - your broker may 'call' and force you to give them cash, pending your future purchase of the share to return (your 'cover').
Now, to MOST people, shares are effectively unlimited - with tens of millions or more shares on the market for most traded firms, liquidity isn't an issue. If you want a share or a few shares in a company, it's pretty easy to get them.
What may or may not be happening here, is that a TON of folks are currently 'short' on Tesla's stock, meaning millions of folks are going to HAVE to buy shares of the stock to 'return to their broker' and cover their short. The problem is that Tesla DIDNT go down.
Normally, lots of folks are short on lots of stocks, and the market just moves. Occasionally, you get a confluence of events which leads to there being a high demand for a stock that a large number of shares are shorted on, which has a self-feeding pain cycle:
the stock price is based mostly on demand and liquidity - as more and more folks HAVE to buy the shares to cover their shorts, the demand for the stock is going to go up, and thus the price is going to go up as well. This increase in price increases the pain, and triggers many brokers to 'call' those margins, requiring MORE people to buy the stock to cover, driving the demand up even higher. The end result is a big spike in the price of the stock, and a TON of people losing money on their bad bets.
You can 'short' a stock that you think is going to lose value (e.g. you expect a major earnings miss to be reported).
Shorting a stock means you borrow a share from (generally) your broker at todays price. You then sell that share to someone else for market price. At a determined date, you have to buy another share at market rate and give it back to your broker (this is called 'covering' your short).
If you bet right, you borrowed a share, and sold it for $N. Then, at a future date, when the price fell, you bought for $N-X, and gave the share back to your broker. You just made $X, the price difference from the value of the stock falling.
If you bet incorrectly, you borrowed a share, and sold it for $N. Then, at the future date, the price is actually higher, and you have to buy a share at $N+X, AND give the share back to your broker. You just lost $X, the price difference from the value of the stock rising.
If you bet REALLY wrong, the $+X factor can get really high - your broker may 'call' and force you to give them cash, pending your future purchase of the share to return (your 'cover').
Now, to MOST people, shares are effectively unlimited - with tens of millions or more shares on the market for most traded firms, liquidity isn't an issue. If you want a share or a few shares in a company, it's pretty easy to get them. What may or may not be happening here, is that a TON of folks are currently 'short' on Tesla's stock, meaning millions of folks are going to HAVE to buy shares of the stock to 'return to their broker' and cover their short. The problem is that Tesla DIDNT go down.
Normally, lots of folks are short on lots of stocks, and the market just moves. Occasionally, you get a confluence of events which leads to there being a high demand for a stock that a large number of shares are shorted on, which has a self-feeding pain cycle: the stock price is based mostly on demand and liquidity - as more and more folks HAVE to buy the shares to cover their shorts, the demand for the stock is going to go up, and thus the price is going to go up as well. This increase in price increases the pain, and triggers many brokers to 'call' those margins, requiring MORE people to buy the stock to cover, driving the demand up even higher. The end result is a big spike in the price of the stock, and a TON of people losing money on their bad bets.