@@musak.4068 According to people with access to non-public records, that was just a small part of it. A liquidity crisis persisted when brokers got margin called and circuit breakers were tripped due to high volatility and lack of tradeable shares.
This is only my second video that i have watched from this channel, and i must say that im very impressed by your knowledge and unbiased your unbiased approach
Awesome video, you rounded the whole thing up really well, i wouldn't have commented, but i felt i had to give you credit for putting it so ...simply i guess..
But what about the competition? Imagine a young upstarting company with an innovating idea or technology and holders of a patent that could radically change the way we live. Because that new company starts out small, can't a large competing corporation just destroy their market value using short selling in a bad way, because they have 1000 times more financial power. They will lose money initially, but eventually the competing company bankrupts and they gain the patent. Isn't that a problem?
@@idk-gq3lh Keep in mind that only a certain percentage (maybe around, say, 25%) of outstanding/floating shares may be made available to the securities lending market. Also, depending the specific scenario, there are cases where one firm shorting a competing firm could be tantamount to (illegal) insider trading.
No, the answer to the question is conclusive. Take it from someone who understands finance and mathematical econometrics thoroughly - short selling is a good thing for the market. His analysis is correct, both theoretically and practically. QED.
Patrick Boyle distilled the SEC report on the matter better than anyone else could. According to the SEC, the short squeeze was over by the time it went viral on the internet. Many people who had never invested before saw the +100% gains and made Robinhood accounts and collectively they bought up every share in existence, bidding up the price to absurd levels and tripping circuit breakers that saved market makers from bankruptcy. Robinhood got margin called and had no choice but to halt trading for the amount of time it took to borrow billions of dollars to post as collateral at the clearing houses.
@@musak.4068 It has to do with how market makers work. They buy and sell indiscriminately and always buy for a little less than they sell, a practice that keeps markets liquid and only works if they can update their prices faster than the market moves in order to keep buys and sells equal. The liquidity crisis of GME saw the price soar as Apes bought every share available, putting market makers at risk of bankruptcy.
this is the shit. it's taken a while to find a good learning source about the important things to learn about and who would have known it's khan academy who ive been helping with my maths degree for ages now.
you know you're getting a thorough look through when the categories are positive and scrutinitive. rather than some textbook giving you some unreal positive and negative categories.
Whether you buy or sell it impacts the momentum, a big buy will raise the price and attract buyers increasing the upwards momentum. And a big sell will have an opposite effect increasing downward momentum and deter buyers, in reality hurting the company. And I think that it's morally och OK if you already have a stake in the company and own shares and want to get out. Imagine a rich person/company buying up most of the milk in a country for what it costs now (lets say 1 Euro) and selling it at a fraction of its price (0.6 Euro). No one would then buy milk at the original price, that would reduce the price so much that the milk company may be able to cover its costs and getting close to bankruptcy. Short selling also involves borrowing (real or virtual depending on the exchange) so the person/company could just borrow/use credit to get all the milk. You might think that it's bad deal for the one selling it at a low price, but if he manages to buy the same amount of milk even cheaper from the milk company (like 0.4 Euro) because of the downward momentum of price that he triggered, then that margin would earn him 0.2 times the big amount of milk involved. Earning him a lot of money but potentially putting the milk company out of business. If the same speculating had been done using buying/going long then it wouldn't hurt the company and would potentially make him the same amount of money. For the reasons above I think it's morally bad to Sell Short. Would you as a person like to be "sold short"? Plus I don't agree with the logic in the chart part of the video. It's sort of like saying that if you move a box 1 meter to the left and then 1 meter to the right it should end up at the same location. Well not if you're at the edge of a cliff when you move it 1 meter to the left and it falls off the cliff, and then you move it 1 meter to the right, it probably won't be at the same place even right-to-left-wise (if you get my point). That's the difference between theoretical/"paper-trading", that in real trading your action affect the market depending on the volume and timing and other factors. I liked the second part though and it was nice to see some one with a different point of view.
But here you make the assumption that sort sellers are able to borrow shares for a price significantly below market value. Why would the milk company do that in the first place if it can't even cover it's costs at that price?
No, I didnt assume a lower price only normal price in the beginning, but they use those borrowed stocks to lower the price, by selling them at a lower price but still higher price than what they will buy it back for eventually. So when they have to return the stocks they borrowed the stock is plummeting and they can buy and return the same number of stocks at a lower price and make a profit. But if the price would rise after they sold the stocks at a lower price they would lose a lot of money, and it is more risky to sell short.
Any buying and selling no matter whether it is day traders or short sellers DO manipulate the stock, since their behavoir does affect the stock price. If this behaviour were taxed or curtailed it would slow it down and make the price of the damn stock more stable and more reflective of the real value of the company.Stock value then has more to do with what the traders do ratiher than what the company does, the quality of its products and the value of the service it provides to society.
The market value of " what the company does, the quality of its products and the value of the service it provides to society" - in other words, the stock price - is determined by what buyer are willing to pay and what sellers are willing to accept. This is the fundamental basis for the law of supply and demand. Indeed, " what the company does, the quality of its products and the value of the service it provides to society" are subjective attributes to be interpreted by the market and its participants and priced accordingly (and, most times, efficiently).
Yeah, if you think about it, companies sell their stocks at their IPO, and rarely do they buy or sell their own stocks after that (compared to all of the other trading of that stock that goes on). That's why the performance of the stock has little to do with the value of the underlying company. It has to do with the perceived value of the company, which can be guessed at in different ways.
Short selling is not inherently bad. But there are short selling funds that spreads misinformation... these are the banes of the business. This is no different from funds telling others a high price target and sell their holdings to the poor retail investors. There are evil in both directions.
Short selling probably does not reduce the volatility of the stock. The reason being is that it simply involves a person wishing to get rid of an asset that they think it's overpriced any person who wishes to acquire that ass that thinks it's underpriced. It should reduce the bear ask spread but even that is a zero sum game. Having stared that, shortselling is mostly the stuff of fools. Reason being is that stocks rise on average which is magnified even more by the fact that inflation decreases the value of the Currensy exposure while you're short so that you have this double headwind constantly eating away at a short position.
All these comments and not one poster says anything about margin or margin requirements. If u don't understand 'margin' and how it works then you have NO business being involved with short selling. You must be well versed with all the rules of this game or basically your toast... I am no expert but. shortiing(as its also known) is generally not for novice or small time traders! Learn the rules and see for yourself then you'll understand! Thx.
Last part does not really make sense. Management spreading false information will face a criminal charge. Short sellers on the other hand, can use bots to spread rumors, use paid articles in investment magazines and if it is claimed as unconfirmed or personal opinion, you cannot do anything with these short sellers. So no short sellers as manipulative as longs, but shorts has more incentives to manipulate given they have unlimited downside potential from price going up.
Theoretically you may be right but what we are seeing now more and more is that these market manipulators are mostly the short sellers. Spreading negative news is WAY easier on the internet than spreading positive news. Hedge Funds are typically the short sellers and they can EASILY manipulate the market because of their huge amounts of capital at play. Bankers play nice with short sellers by the way. Sell side analyst for competing stocks can also scrutinize. The question remains inconclusive.
Nonsense. If anyone could actually manipulate the market that would be a benefit to you since you could buy stocks that missed priced values. You don't understand the very simplest aspects of speculating you should never be in the stock market.
Imagine if someone borrowed you car while you slept(without your consent) sold it to an Uber Driver who used it for 500 miles and then sold it back someone who placed it back in your driveway in the morning. Can you imagine this being legal? Your car is worth less money it has more mileage and you never had a say. That’s what shorting is.
@@spacetoast7783 the fact it’s being sold when it already has been sold(to me) decreases the value because the supply of the stock has been artificially increased. Someone took my property and sold it even though it already has been. Do you have any idea how supply and demand works? Lol. The car analogy is very close to the stock analogy. Sure there isn’t physical wear and tear on the stock as it would be with a car. But the physical selling of it reduces my value especially when tons of speculators are stealing my already purchased stock and then reselling it at a discount. In effect they are artificially increasing the supply that the market sees. They are in effect printing stock where non truly was available to purchase outside of a short.
When a stock is loaned for the purpose of selling it, its back in the pool of available shares to the market. If you have 1000 shares that actual sellers have been holding long on, that’s the supply. Add to that 1000 shorts and now the supply is 2000. Is this really hard to understand? When there is more available to the market of anything the supply has gone up. It’s funny you lecturing me on supply and demand. Proves that colleges spend more time teaching Karl Marx than Adam smith.
@@patrickgrolemund545 It's really nothing like your car example, because shares aren't physical goods. They represent a contractual conference of ownership privileges, and it's assumed that the market value will fluctuate. In a margin account, that's the way the cookie crumbles. Otherwise, hold your shares in a cash account. "Proves that colleges spend more time teaching Karl Marx than Adam smith."
By that logic all trades lessen volatility. Then there is zero volatility and all stocks are flat. Extremely wealthy shorts can destroy any company overnight and overtime without risk. It has happened and will continue to happen.
You do a great job explaining all kinds of stuff; I watched and learned a lot from your math videos at your site before I ever got hooked on youtube for laughs. Wish I had stick with the course back then. You do an amazing job. What about when large numbers of traders focus primarily on selling down trend reversals, and only buy substantial shares when the price drops significantly. I read something recently that various companies stock price could not reach fair value because short sellers were constantly shorting the stock and keeping the price down. If a lot of sellers regularly short the same stock, if they t constantly Short high and only buy when it bottoms out. That sounds similar to what I once heard about called "A denial of service attack". Then they come back later and do it again. I know one trader who said he had one particular stock he loved to short all the time apparently. Just saying, seems like somethings wrong with the portrait. I haven't learned to do that stuff myself, that's why I'm here, I'm studying up. I'm sorry I need to finish watching the video now. I've watched about 7 or 8 of your videos today. Thanks
I can appreciate the explanation except when surrogates go onto the financial networks to say how bad a stock is or a company is. The hedge funds absolutely manipulates the market. Second I have a problem with the idea of my property being sold without my agreement. Maybe the agreement is an inherent part of owning stock but this seems to create circular logic. Name any property where you would expect it to be sold by anyone other than the owner. It simply does not exist to my knowledge. Third your discussion on what would happen if short selling was not happening (volatility of your example) is purely theoretical. Shorting stock has been allowed since 1937??? You also provide analysis of a “perfect” short seller who does not exist. Short sellers who have shorted 130% of the stock, mean they are actively trying to drive the price. People are piling on literally to signal to the market to sell sell sell.
It's important to note that once a share is sold short, whoever buys that share establishes a long position. As far as the market is concerned, there's no indication that new long position was created from a short sale, however, so if it's being held in a margin account, it will likely be made available for lending again. And when a short seller enters an order to sell short, he doesn't know where the shares he's selling short are coming from: his broker borrows the stock for him and delivers it to the counterparty. Margin account agreements almost always require shares held in such accounts to be made available for lending. Many brokers pass a portion of the borrowing fee paid by short sellers onto the original holder of the share. Keep in mind that whoever is holding the shares can request they be returned at any time for any reason, and the borrow is always only temporary, as the short seller is eventually going to buy-to-close (cover) the short positions, at which time the shares will be returned. Some countries have altogether banned short selling, and what resulted was less liquidity and poorer market quality. It's counterintuitive, but short selling actually provides a benefit for the market. I think you're taking one example and extrapolating it to the concept of short selling itself, which isn't really accurate or prudent. Anyway, if you don't want your shares to be lent out, hold them in a CASH account, as opposed to a MARGIN account.
@@ScottAllenFinance To add to your convo: selling shares will increase supply and lower demand of a stock because you're selling into the market. Shares don't always have an immediate buyer, and thus Market Makers will pick them up and they'll float "on a shelf" in the market. Once enough are on that shelf the price of said stock will go down. Selling shares to an immediate buyer doesn't have any practical effect because yeah you sold, but someone else bought. Now this is only referring to selling already owned shares. Short selling works different. Short Selling is like fractional reserve lending, in spirit. Owners will always have access to their "borrowed shares" (borrowed money in fractional reserve lending) but now an additional investor somewhere out there has purchased that share and also owns it. The only one who does not own yet owes that share is the short seller. This can drive a stock down because ppl will look and wonder why this person is shorting, and if the short seller offers the stock for a price much lower than current market, that's a sign of extreme confidence the company will lose value. It can/may cause others to dig deep and snoop around the company. Starting a chain reacting of both selling (exiting position) & short selling (betting on the price to drop).
I don't think that's accurate. Short selling carries the risk of UNLIMITED LOSSES (as the stock rises indefinitely, short sellers continue to lose money), whereas long positions have defined risk (can only go to zero, no lower). Short selling is inherently risky. If you want to bet on stocks declining but cap your losses, but put options instead.
That makes as much sense as "IV is priced in." And no, we want things to always trade at their fair value, and we don't want random events to break people.
12 min mark explains why January 27th, 2021 Gamestop shook the world
No, actually. According to the SEC, the short squeeze was over by that time. What really happened was a liquidity crisis.
@@samsonsoturian6013 What happened was a gamma squeeze + short squeeze
@@musak.4068 According to people with access to non-public records, that was just a small part of it. A liquidity crisis persisted when brokers got margin called and circuit breakers were tripped due to high volatility and lack of tradeable shares.
This is only my second video that i have watched from this channel, and i must say that im very impressed by your knowledge and unbiased your unbiased approach
Awesome video, you rounded the whole thing up really well, i wouldn't have commented, but i felt i had to give you credit for putting it so ...simply i guess..
But what about the competition?
Imagine a young upstarting company with an innovating idea or technology and holders of a patent that could radically change the way we live.
Because that new company starts out small, can't a large competing corporation just destroy their market value using short selling in a bad way, because they have 1000 times more financial power. They will lose money initially, but eventually the competing company bankrupts and they gain the patent. Isn't that a problem?
@@idk-gq3lh Keep in mind that only a certain percentage (maybe around, say, 25%) of outstanding/floating shares may be made available to the securities lending market.
Also, depending the specific scenario, there are cases where one firm shorting a competing firm could be tantamount to (illegal) insider trading.
No, the answer to the question is conclusive. Take it from someone who understands finance and mathematical econometrics thoroughly - short selling is a good thing for the market. His analysis is correct, both theoretically and practically. QED.
"If a company is bleeding it will attract sharks."
hahaha very nice way to depict that.
This was pretty eye-opening, thank you.
Very informative especially in light of the whole Gamespot debacle
I think this whole series about shorting, and mortgage-backed securities is a required watch before watching "The Big Short" lol
I'd love to see an updated version on GME. =) Can you explain in more detail. Thank you so much for your courses
Patrick Boyle distilled the SEC report on the matter better than anyone else could. According to the SEC, the short squeeze was over by the time it went viral on the internet. Many people who had never invested before saw the +100% gains and made Robinhood accounts and collectively they bought up every share in existence, bidding up the price to absurd levels and tripping circuit breakers that saved market makers from bankruptcy. Robinhood got margin called and had no choice but to halt trading for the amount of time it took to borrow billions of dollars to post as collateral at the clearing houses.
@@samsonsoturian6013 " market makers from bankruptcy" MMs were not at risk of bankruptcy. Hedge Funds were.
@@musak.4068 It has to do with how market makers work. They buy and sell indiscriminately and always buy for a little less than they sell, a practice that keeps markets liquid and only works if they can update their prices faster than the market moves in order to keep buys and sells equal. The liquidity crisis of GME saw the price soar as Apes bought every share available, putting market makers at risk of bankruptcy.
@@musak.4068 Also, there were just as many hedgies on the long side as the short side.
@@samsonsoturian6013 You're only relaying even more misinformation, which was the point of my initial remark.
this is the shit. it's taken a while to find a good learning source about the important things to learn about and who would have known it's khan academy who ive been helping with my maths degree for ages now.
you know you're getting a thorough look through when the categories are positive and scrutinitive. rather than some textbook giving you some unreal positive and negative categories.
Whether you buy or sell it impacts the momentum, a big buy will raise the price and attract buyers increasing the upwards momentum. And a big sell will have an opposite effect increasing downward momentum and deter buyers, in reality hurting the company.
And I think that it's morally och OK if you already have a stake in the company and own shares and want to get out.
Imagine a rich person/company buying up most of the milk in a country for what it costs now (lets say 1 Euro) and selling it at a fraction of its price (0.6 Euro). No one would then buy milk at the original price, that would reduce the price so much that the milk company may be able to cover its costs and getting close to bankruptcy.
Short selling also involves borrowing (real or virtual depending on the exchange) so the person/company could just borrow/use credit to get all the milk.
You might think that it's bad deal for the one selling it at a low price, but if he manages to buy the same amount of milk even cheaper from the milk company (like 0.4 Euro) because of the downward momentum of price that he triggered, then that margin would earn him 0.2 times the big amount of milk involved. Earning him a lot of money but potentially putting the milk company out of business.
If the same speculating had been done using buying/going long then it wouldn't hurt the company and would potentially make him the same amount of money.
For the reasons above I think it's morally bad to Sell Short. Would you as a person like to be "sold short"?
Plus I don't agree with the logic in the chart part of the video. It's sort of like saying that if you move a box 1 meter to the left and then 1 meter to the right it should end up at the same location. Well not if you're at the edge of a cliff when you move it 1 meter to the left and it falls off the cliff, and then you move it 1 meter to the right, it probably won't be at the same place even right-to-left-wise (if you get my point).
That's the difference between theoretical/"paper-trading", that in real trading your action affect the market depending on the volume and timing and other factors.
I liked the second part though and it was nice to see some one with a different point of view.
But here you make the assumption that sort sellers are able to borrow shares for a price significantly below market value. Why would the milk company do that in the first place if it can't even cover it's costs at that price?
No, I didnt assume a lower price only normal price in the beginning, but they use those borrowed stocks to lower the price, by selling them at a lower price but still higher price than what they will buy it back for eventually. So when they have to return the stocks they borrowed the stock is plummeting and they can buy and return the same number of stocks at a lower price and make a profit.
But if the price would rise after they sold the stocks at a lower price they would lose a lot of money, and it is more risky to sell short.
@@StickThisUpYourAnus This is also sometimes used together with the spread of fake negative news to drive down the price during the short selling.
Any buying and selling no matter whether it is day traders or short sellers DO manipulate the stock, since their behavoir does affect the stock price. If this behaviour were taxed or curtailed it would slow it down and make the price of the damn stock more stable and more reflective of the real value of the company.Stock value then has more to do with what the traders do ratiher than what the company does, the quality of its products and the value of the service it provides to society.
The market value of " what the company does, the quality of its products and the value of the service it provides to society" - in other words, the stock price - is determined by what buyer are willing to pay and what sellers are willing to accept. This is the fundamental basis for the law of supply and demand. Indeed, " what the company does, the quality of its products and the value of the service it provides to society" are subjective attributes to be interpreted by the market and its participants and priced accordingly (and, most times, efficiently).
Yeah, if you think about it, companies sell their stocks at their IPO, and rarely do they buy or sell their own stocks after that (compared to all of the other trading of that stock that goes on).
That's why the performance of the stock has little to do with the value of the underlying company. It has to do with the perceived value of the company, which can be guessed at in different ways.
One of the best video from Sal. Thank you!
So awesome to find this playlist!
Short selling is not inherently bad. But there are short selling funds that spreads misinformation... these are the banes of the business. This is no different from funds telling others a high price target and sell their holdings to the poor retail investors.
There are evil in both directions.
Short selling probably does not reduce the volatility of the stock. The reason being is that it simply involves a person wishing to get rid of an asset that they think it's overpriced any person who wishes to acquire that ass that thinks it's underpriced. It should reduce the bear ask spread but even that is a zero sum game. Having stared that, shortselling is mostly the stuff of fools. Reason being is that stocks rise on average which is magnified even more by the fact that inflation decreases the value of the Currensy exposure while you're short so that you have this double headwind constantly eating away at a short position.
All these comments and not one poster says anything about margin or margin requirements. If u don't understand 'margin' and how it works then you have NO business being involved with short selling. You must be well versed with all the rules of this game or basically your toast... I am no expert but. shortiing(as its also known) is generally not for novice or small time traders! Learn the rules and see for yourself then you'll understand! Thx.
Last part does not really make sense. Management spreading false information will face a criminal charge. Short sellers on the other hand, can use bots to spread rumors, use paid articles in investment magazines and if it is claimed as unconfirmed or personal opinion, you cannot do anything with these short sellers.
So no short sellers as manipulative as longs, but shorts has more incentives to manipulate given they have unlimited downside potential from price going up.
Thank you so much for the explanation.
Theoretically you may be right but what we are seeing now more and more is that these market manipulators are mostly the short sellers. Spreading negative news is WAY easier on the internet than spreading positive news. Hedge Funds are typically the short sellers and they can EASILY manipulate the market because of their huge amounts of capital at play. Bankers play nice with short sellers by the way. Sell side analyst for competing stocks can also scrutinize. The question remains inconclusive.
Nonsense. If anyone could actually manipulate the market that would be a benefit to you since you could buy stocks that missed priced values. You don't understand the very simplest aspects of speculating you should never be in the stock market.
Find another industry where selling borrowed goods to repurchase & return when depreciated isn't clearly unethical
Imagine if someone borrowed you car while you slept(without your consent) sold it to an Uber Driver who used it for 500 miles and then sold it back someone who placed it back in your driveway in the morning. Can you imagine this being legal? Your car is worth less money it has more mileage and you never had a say. That’s what shorting is.
@@spacetoast7783 the fact it’s being sold when it already has been sold(to me) decreases the value because the supply of the stock has been artificially increased. Someone took my property and sold it even though it already has been. Do you have any idea how supply and demand works? Lol. The car analogy is very close to the stock analogy. Sure there isn’t physical wear and tear on the stock as it would be with a car. But the physical selling of it reduces my value especially when tons of speculators are stealing my already purchased stock and then reselling it at a discount. In effect they are artificially increasing the supply that the market sees. They are in effect printing stock where non truly was available to purchase outside of a short.
When a stock is loaned for the purpose of selling it, its back in the pool of available shares to the market. If you have 1000 shares that actual sellers have been holding long on, that’s the supply. Add to that 1000 shorts and now the supply is 2000. Is this really hard to understand? When there is more available to the market of anything the supply has gone up. It’s funny you lecturing me on supply and demand. Proves that colleges spend more time teaching Karl Marx than Adam smith.
@@patrickgrolemund545 It's really nothing like your car example, because shares aren't physical goods. They represent a contractual conference of ownership privileges, and it's assumed that the market value will fluctuate. In a margin account, that's the way the cookie crumbles. Otherwise, hold your shares in a cash account. "Proves that colleges spend more time teaching Karl Marx than Adam smith."
great vid, i was wondering why the NYSE created the uptick rule for short selling?
By that logic all trades lessen volatility. Then there is zero volatility and all stocks are flat. Extremely wealthy shorts can destroy any company overnight and overtime without risk. It has happened and will continue to happen.
Thanks Sal. So how do you feel about AIG?
Is this the cause of irrational exuberance ?
what about the SEC would you lump them in with the government/positive side?
Great stuff Sal !
You do a great job explaining all kinds of stuff; I watched and learned a lot from your math videos at your site before I ever got hooked on youtube for laughs. Wish I had stick with the course back then. You do an amazing job.
What about when large numbers of traders focus primarily on selling down trend reversals, and only buy substantial shares when the price drops significantly. I read something recently that various companies stock price could not reach fair value because short sellers were constantly shorting the stock and keeping the price down.
If a lot of sellers regularly short the same stock, if they t constantly Short high and only buy when it bottoms out. That sounds similar to what I once heard about called "A denial of service attack". Then they come back later and do it again. I know one trader who said he had one particular stock he loved to short all the time apparently.
Just saying, seems like somethings wrong with the portrait. I haven't learned to do that stuff myself, that's why I'm here, I'm studying up.
I'm sorry I need to finish watching the video now. I've watched about 7 or 8 of your videos today. Thanks
Thank you
Good video mang
GOOD VIDEO
👌😍 never thought of it this way
This reminds of the movie "The Big Short"
So you can create paper assets by shorting silver contracts with a 5 year mining deficit. This is fungable with forex and oil etfs
no. watch the video again.
Thanks for the tip about CNBC Sal even though you work for them now. Haha
Volatility =?
The irregularities in market. The more the irregularity in the stock graph, the more the market is considered volatile and vice versa
Great video, cancer resolution.
12:46 e.g. Peter Schiff...
I can appreciate the explanation except when surrogates go onto the financial networks to say how bad a stock is or a company is. The hedge funds absolutely manipulates the market.
Second I have a problem with the idea of my property being sold without my agreement. Maybe the agreement is an inherent part of owning stock but this seems to create circular logic. Name any property where you would expect it to be sold by anyone other than the owner. It simply does not exist to my knowledge.
Third your discussion on what would happen if short selling was not happening (volatility of your example) is purely theoretical. Shorting stock has been allowed since 1937??? You also provide analysis of a “perfect” short seller who does not exist. Short sellers who have shorted 130% of the stock, mean they are actively trying to drive the price. People are piling on literally to signal to the market to sell sell sell.
It's important to note that once a share is sold short, whoever buys that share establishes a long position. As far as the market is concerned, there's no indication that new long position was created from a short sale, however, so if it's being held in a margin account, it will likely be made available for lending again. And when a short seller enters an order to sell short, he doesn't know where the shares he's selling short are coming from: his broker borrows the stock for him and delivers it to the counterparty.
Margin account agreements almost always require shares held in such accounts to be made available for lending. Many brokers pass a portion of the borrowing fee paid by short sellers onto the original holder of the share. Keep in mind that whoever is holding the shares can request they be returned at any time for any reason, and the borrow is always only temporary, as the short seller is eventually going to buy-to-close (cover) the short positions, at which time the shares will be returned.
Some countries have altogether banned short selling, and what resulted was less liquidity and poorer market quality. It's counterintuitive, but short selling actually provides a benefit for the market. I think you're taking one example and extrapolating it to the concept of short selling itself, which isn't really accurate or prudent. Anyway, if you don't want your shares to be lent out, hold them in a CASH account, as opposed to a MARGIN account.
@@ScottAllenFinance To add to your convo: selling shares will increase supply and lower demand of a stock because you're selling into the market. Shares don't always have an immediate buyer, and thus Market Makers will pick them up and they'll float "on a shelf" in the market. Once enough are on that shelf the price of said stock will go down. Selling shares to an immediate buyer doesn't have any practical effect because yeah you sold, but someone else bought. Now this is only referring to selling already owned shares.
Short selling works different. Short Selling is like fractional reserve lending, in spirit. Owners will always have access to their "borrowed shares" (borrowed money in fractional reserve lending) but now an additional investor somewhere out there has purchased that share and also owns it. The only one who does not own yet owes that share is the short seller. This can drive a stock down because ppl will look and wonder why this person is shorting, and if the short seller offers the stock for a price much lower than current market, that's a sign of extreme confidence the company will lose value. It can/may cause others to dig deep and snoop around the company. Starting a chain reacting of both selling (exiting position) & short selling (betting on the price to drop).
It is easier to predict a downfall of a stock than an upturn , therefore , it is easier to make money short selling .
I don't think that's accurate. Short selling carries the risk of UNLIMITED LOSSES (as the stock rises indefinitely, short sellers continue to lose money), whereas long positions have defined risk (can only go to zero, no lower). Short selling is inherently risky. If you want to bet on stocks declining but cap your losses, but put options instead.
This is dumb. Life is volatile. Volatility creates opportunity. Short selling shouldn’t be part of the market.
Volatility is bad for allocating capital
That makes as much sense as "IV is priced in." And no, we want things to always trade at their fair value, and we don't want random events to break people.
@dekekyo LAWLS
244p
Such BS I lost 3 IQ points by watching.
But it's impossible to have an IQ of 0
You are in debt.
In other words, it's all a scam. Lol