Shorting stocks is investing backwards, betting a stock will go down, rather than up. To effect this you borrow stock, not buy it, you sell immediately in order to gain, not hold it. All very contrary.
But this "opposite side of the trade" performs one minor and another major benefit: the minor is it adds liquidity to a market, that is more shares are available to players, and the major benefit is shorting is all that is necessary and sufficient to regulate markets. Short sellers only risk their money when they smell a rat. Taxpayers do not have to fork over the money to regulate (and all regulators are captured by the regulated anyway, see Bernie Madoff, see every stock market debacle). Short sellers have excellent noses for sniffing out rats.
To short a stock is to borrow the shares, say 200 each priced at $50 and then immediately sell them for their $10,000 value. The bet is that rat scent has a source, and when revealed, the stock will drop in value, say from $50 to $22. At that point, since stocks are fungible, the short seller simply buys 200 shares at todays (say a month later) $22 price ($4400) and returns the 200 shares received in todays purchase from where he borrowed them. The short seller gained $10,000 selling the stock, paid $4400 recovering the borrowed shares, and earned the $5600 difference between the two prices over the given time period. (There are some slight financial considerations involved too, but leave that aside for clarity's sake). As I said, this function is all that is necessary and sufficient to effectively regulate the stock market. Rats are fined exactly the yield of their fraud.
Now, there is also so-called "naked short selling"' wherein the stocks are never borrowed to begin with, only market makers claim to have had done so at an earlier point, and then buy shares at $22 and demand their $5600 profit. Why such a simple fraud is in any way described "short selling" is inscrutable, like when two men committing to each other is somehow deemed marriage. Definitions are so lax nowadays.
Now although this is clearly fraud, the SEC, in its role as captured regulator, naturally has nothing expressly to say about it, only to make clear it is aware of the practice. Rumor has it deep in its pointless rule books there may be some disapproval of it on principle, but not as though any criminal might lose sleep over enforcement.
Feel free to forward this by email to three of your friends.
But this "opposite side of the trade" performs one minor and another major benefit: the minor is it adds liquidity to a market, that is more shares are available to players, and the major benefit is shorting is all that is necessary and sufficient to regulate markets. Short sellers only risk their money when they smell a rat. Taxpayers do not have to fork over the money to regulate (and all regulators are captured by the regulated anyway, see Bernie Madoff, see every stock market debacle). Short sellers have excellent noses for sniffing out rats.
To short a stock is to borrow the shares, say 200 each priced at $50 and then immediately sell them for their $10,000 value. The bet is that rat scent has a source, and when revealed, the stock will drop in value, say from $50 to $22. At that point, since stocks are fungible, the short seller simply buys 200 shares at todays (say a month later) $22 price ($4400) and returns the 200 shares received in todays purchase from where he borrowed them. The short seller gained $10,000 selling the stock, paid $4400 recovering the borrowed shares, and earned the $5600 difference between the two prices over the given time period. (There are some slight financial considerations involved too, but leave that aside for clarity's sake). As I said, this function is all that is necessary and sufficient to effectively regulate the stock market. Rats are fined exactly the yield of their fraud.
Now, there is also so-called "naked short selling"' wherein the stocks are never borrowed to begin with, only market makers claim to have had done so at an earlier point, and then buy shares at $22 and demand their $5600 profit. Why such a simple fraud is in any way described "short selling" is inscrutable, like when two men committing to each other is somehow deemed marriage. Definitions are so lax nowadays.
Now although this is clearly fraud, the SEC, in its role as captured regulator, naturally has nothing expressly to say about it, only to make clear it is aware of the practice. Rumor has it deep in its pointless rule books there may be some disapproval of it on principle, but not as though any criminal might lose sleep over enforcement.
Feel free to forward this by email to three of your friends.
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