It's like this...
... short sellers sell a bunch of shares they don't have (that's the nature of shorting) ... they have to borrow the shares from the broker who borrows it out of our accounts without our knowledge of that happening. This is perfectly ok because those shares must ALWAYS be returned.
To return shares short sellers have already sold, it is the short seller who hopes to buy them back at a cheaper price than he sold them and book a profit.
If the company goes bankrupt then the short seller never has to buy them back and simply make 100% of the money he sold the shares for.
But in an illiquid market like this, a lot of shorting can drive the price down...if the company doesn't go bankrupt, then the short seller must find a way to buy back those shares as cheaply as possible and then return the borrowed shares back to the broker.
Here's the problem I think short sellers are going to encounter. As they go out and patiently over many weeks and months try to cover the short by buying cheap... they will find that there aren't too many cheap shares to be purchased unless they are also being sold by more foolish short sellers.
But eventually the supply of shares to cover will dry up.
Then the short seller has to get out.
But how?
He will increase his bid... and nothing. He'll increase it some more... and nothing.
Then the panic starts. He's trapped.
None of the tightly held shares are getting released.
To make matters worse as the market moves against him, he has to answer to margin calls because the broker getting worried that the short seller might not have the funds to buy back all those shares at such high prices.
If the short seller doesn't post margin money, then the broker uses the short seller's funds and forces buys...
... these short sellers in such a scenario are going to have their rear end handed to them.
Krombacher
