Shorting stocks
Discussion
Since every other shares thread appeared in P&P...
I was thinking... why is shorting a bad thing? Yes, you can borrow shares to sell, but that means there must be someone will to buy them back at the lower price. Without the two parties agreeing on a price, it would be a loss for the shorter... so why ban shorting?
I was thinking... why is shorting a bad thing? Yes, you can borrow shares to sell, but that means there must be someone will to buy them back at the lower price. Without the two parties agreeing on a price, it would be a loss for the shorter... so why ban shorting?
m4tt said:
It is bad because people try to artificially decrease the price by spreading bad news that may or may not exist. Thus the short seller benefits but other shareholders lose out. Not everyone is as honest as you or I.
Agreed, IMHO shorting isn't a bad thing. Spreading bad news in illiquid markets whilst taking large short positions is perhaps a bad thing though. Where is the line .. who knows!ShadownINja said:
Hang on, buying and spreading rumours about how good shares are is also a bad thing ("pump and dump"). Should we ban going long, too, to prevent the FTSE going above 5000 points again?
Not disputing what you're saying however people tend to question good news and look for proof whereas they accept bad news as gospel and dump their shares/don't buy any meaning the price plummets.m4tt said:
It is bad because people try to artificially decrease the price by spreading bad news that may or may not exist. Thus the short seller benefits but other shareholders lose out. Not everyone is as honest as you or I.
By the same token you could hold shares and spread good news that may not exist, or at least be exxagerated.It's spreading misinformation that's the problem, not the transaction itself.
Nothing wrong with it. When you buy furniture, the chances are that it they don't have it- it probably doesn't even exist yet. And, we do this all the time. As long as the goods are delivered as agreed, the deal is ok.
All this crap in the media about short selling is Gordon trying to shunt the blame (for his own lamentable time as Chancellor) onto someone else. And, 'envy' is readily available...
All this crap in the media about short selling is Gordon trying to shunt the blame (for his own lamentable time as Chancellor) onto someone else. And, 'envy' is readily available...
There is only one potential problem with shorting:
- it is possible to put a company out of business if the shorting is on a big enough scale, if the short-sellers' behaviour is sufficently abusive (which may but need not necessarily include false rumours), and if the company's sustainability is dependent on an intangible such as nightly access to funding (for example - a bank).
There is no equivalent potentiality when going long.
The above combination of factors is not present in >99.9% of short positions, but the rare exceptions give the misunderstood practice its bad name.
- it is possible to put a company out of business if the shorting is on a big enough scale, if the short-sellers' behaviour is sufficently abusive (which may but need not necessarily include false rumours), and if the company's sustainability is dependent on an intangible such as nightly access to funding (for example - a bank).
There is no equivalent potentiality when going long.
The above combination of factors is not present in >99.9% of short positions, but the rare exceptions give the misunderstood practice its bad name.
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