Interesting on short squeezes are a boon in terms of market liquidity. Derivative trading plays a key role. Sellers of derivatives protection – after selling into market weakness to dynamically hedge their exposures – become aggressive buyers in a rallying marketplace.
On the margin, speculative and derivatives trading are the marginal sources of marketplace liquidity. “Risk On” leveraged speculation creates liquidity and fuels looser conditions, while “Risk Off” destroys liquidity and tightens financial conditions.