Definition ∞ A short position unwind occurs when traders who have sold an asset they do not own, expecting its price to fall, decide to close their positions. This involves buying back the asset, which creates upward price pressure. Such unwinds are often triggered by an unexpected price increase or a change in market sentiment. This action can lead to a rapid price surge, commonly known as a short squeeze.
Context ∞ In volatile cryptocurrency markets, short position unwinds are frequently reported in news as a catalyst for rapid price rallies. These events often follow periods of sustained price decline, catching bearish traders off guard. Analysts monitor funding rates and open interest in derivatives markets for signs of potential short squeezes that could accelerate upward price movements.
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