Short Selling Vacuum

[lusk]

The bad thing about shorts is that in a weak market they can trigger an avalanche,

A big hedge fund that does a massive short on say CBA, can make the share price drop artificially, which then triggers other peoples stop losses which floods the market with more stocks which can then trigger margin calls and force more stocks to be sold to clear the margin call,.... then the price drop breeds fear in the investors going long who may also sell down some stocks.

The hedge fund can then buy in at a lower price, but only at the expense of the investors and traders that had there margin calls and stop losses triggered.

Shorting can easily be abused by the big guys.

Problem is we are lead to believe in the news that this manipulation is done with borrowed stock, what would stop a hedge fund buying stock and then intentionally selling it to push the price down?

Banning short selling will not change anything, if they want to shake people out they will.

 

[Temjin]

The bad thing about shorts is that in a weak market they can trigger an avalanche,

A big hedge fund that does a massive short on say CBA, can make the share price drop artificially, which then triggers other peoples stop losses which floods the market with more stocks which can then trigger margin calls and force more stocks to be sold to clear the margin call,.... then the price drop breeds fear in the investors going long who may also sell down some stocks.

The hedge fund can then buy in at a lower price, but only at the expense of the investors and traders that had there margin calls and stop losses triggered.

Shorting can easily be abused by the big guys.

I would rather see more evidences toward such "manipulation" theory than blindly believe what the media tell us.

My understanding is that short positions only account for merely 2% (or so) for all open positions on any stocks. In fact, there is a report saying that the number of short positions held on Goldman Sachs has actually DECREASED since 2008 and accelerated more in the leading weeks before its share price crashed down. Apparently, even Goldman Sachs know this but they aren't saying anything about it, but instead, nag on the government to take the blame onto the short sellers.

 

[nunthewiser]

Problem is we are lead to believe in the news that this manipulation is done with borrowed stock, what would stop a hedge fund buying stock and then intentionally selling it to push the price down?

Banning short selling will not change anything, if they want to shake people out they will.

Yes and with the hegdies and other bigger fish not in there creating short entrys /covers it will be a lil bit more illiquid leading to manipualtion on a grander scale . only opinion of course but methinks the ramifications of these rash moves have not been thought through thoroughly

 

[solomon]

I will be surprised if short selling ever comes back.

Let me qualify that.

The present turmoil isn't going to disappear because helicopter Ben and friend drop near to 1 trillion dollars out of the sky. So while the danger exists of any kind of meltdown I think they might just extend the ban IMHO.

 

[fordxbt]

ban short selling creates euforia -> people gradually become interested again (interested in buying; rather than rocking in the faetal position about their loss) -> market begins to recover after scapegoat

 

[Timmy]

In fact, there is a report saying that the number of short positions held on Goldman Sachs has actually DECREASED since 2008 and accelerated more in the leading weeks before its share price crashed down.

Some pretty cluey traders at GS, might well have been short their own stock...

 

[Tysonboss1]

No different than buying can be abused by big guys, imo.

If they want a stock to run they just have to place a few orders back in the queue to make it looks like buyers are building, and then if they really want they can just purchase a few lines of sell orders at once to give it increased volume and a nice price rise which will make people jump onboard.

yes but you can't force buyers as you can force sellers.

 

[prawn_86]

yes but you can't force buyers as you can force sellers.

You can only force sellers if they are buying on margin (which seems very similar to naked shorts if you ask me).

Perhaps we should ban all margin lending also...

 

[Tysonboss1]

You can only force sellers if they are buying on margin (which seems very similar to naked shorts if you ask me).

Perhaps we should ban all margin lending also...

And you will trigger traders with stop losses,...

Margin loans are nothing like naked shorts, Margin loans are simply just borrowing money to buy a stock and using part of the value of the stock as security for the loan, Much the same way as a people do when they buy property, they will use the property as security for the loan,

 

[Temjin]

Some pretty cluey traders at GS, might well have been short their own stock...

Heh, I'm not quite sure if they want to risk their job for doing so. But I wondered who would check?

 

[brettc4]

Arguments on both sides of the short selling market make interesting points. It does help balance the market by allow selling to occur when investors see it turning down, but it also allows a small group to abuse short selling to a position well below what they value the stock at, simply to take advantage of someone elses margin backed position.

Should this be allowed? I would say no because the short seller in this case is not interested in buying the stock at what the general public would consider a pair price, while the person buying, is paying what they believe to be a reasonable and pair price.

This may be my simple view of it, but then again, I like simple.

Brett

 

[alwaysLearning]

Could someone please explain to me the difference between "naked short selling" and "covered short selling"?

Let me have a go and you guys tell me if I'm right:

1. Naked short selling is where you don't have to own the share, stock, or whatever it is that you are trading. You can just click on the sell icon and take a position such that you are making money as the market moves down.

2. Covered short selling is where you already own stock in a company and you then decide you want to sell some of your shares.

3. So, can I confirm that if you were trading say the SPI 200 Futures contracts, then you can not 'short sell' at all?--Is that correct? Forgive my newbie questions...I only trade currencies and numbered item 1 is the name of the game with Forex trading and it works fine obviously. They can't put restrictions with shorting the USD lol

ASIC has prohibited naked and covered short selling of all securities, managed investment products and stapled securities quoted on licensed markets in Australia, subject to certain exceptions (see below). This prohibition came into effect on 19 and 22 September 2008.

http://www.asic.gov.au/ASIC/asic.ns...ASIC’s response to short selling?opendocument

 

[chops_a_must]

1. Naked short selling is where you don't have to own the share, stock, or whatever it is that you are trading. You can just click on the sell icon and take a position such that you are making money as the market moves down.

As far as I understand, a naked short is one you don't have access to, i.e. you haven't sourced the stock before selling it.

So it means a share is being "sold" without it even existing. Usually this shows up in the settlement when it can't be settled, and apparently this happens with less than 1% of all short sales.

 

[Trembling Hand]

And covered is when you borrow stock from a long term holder and sell it into the market But promise to buy it back latter to return the the original long term holder.

It is not what you have described at 2. That's just closing a long.

 

[Trembling Hand]

And all futures trading is naked, both long and shorts.



(except if you are a producer or hedger but thats not what futs are for )

 

[alwaysLearning]

Thanks guys, I understand now properly what short selling is

It was the 'covered short selling' as TH mentions that I had a wrong understanding on but I get it now

 

[n5032245]

there have been several stories of late that have mentioned that when the shorting ban is lifted on tuesday for non financials, that there is going to be a lack of stock to be lent out so that it can be shorted.

i have heard that this has been happening in the states. i don't understand why there would be a shortage of stock now, as opposed to before the ban. does anyone have info/an opinion of this?