Why do we allow short selling?

[Huskar]

Here's a story on a ASIC review of the short selling ban during the GFC.
http://www.smh.com.au/business/little-gratitude-for-the-ban-that-saved-the-bacon-20120924-26hec.html

You forgot to add the completely contradictory report that ASIC have "vowed" to reimpose short selling bans if necessary.

http://www.smh.com.au/business/asic...n-in-chaosfighting-armory-20120924-26hdz.html

Talk about hypocritical!

Not only does short selling add to market liquidity I am a firm believer in short sellers acting as an important market mechanism. They are usually the first to reveal fraud and failure.

And a company blaming its declining share price on short sellers is usually a good red flag for a potential short...

 

[Superb Parrot]

You forgot to add the completely contradictory report that ASIC have "vowed" to reimpose short selling bans if necessary.

http://www.smh.com.au/business/asic...n-in-chaosfighting-armory-20120924-26hdz.html

Talk about hypocritical!

Not only does short selling add to market liquidity I am a firm believer in short sellers acting as an important market mechanism. They are usually the first to reveal fraud and failure.

And a company blaming its declining share price on short sellers is usually a good red flag for a potential short...

I am still trying to get my head around shorting.....why not let the owners of those shares sell them if there is suspicion about the company ? There are plenty of institutional investors that hold the shares ready to hit the sell button. Why force an unnatural volatility (read a very rapid drop in price) in the name of that weasel term "price discovery"?......no, it is all about liquidity, something for the day traders to play with.

 

[tech/a]

but selling a borrowed share ????....

The Owner of the share recieves a premium.
The borrower sells the share with the intent of buying it back at a later date and pocketting the difference.
Hence giving back the owner his shares.
Standard practice for shorting.

Now pray tell how do I short a house?
Subdivide it?--kidding

Only certain shares can be shorted unless they are CFD's.
Check the ASX site for more info

 

[Joules MM1]

....no, it is all about liquidity, something for the day traders to play with.

everything is about liquidity......daytraders merely take the advantage of a mechanism that other's don't or can't because they either dont know how to, have liquidity constraints or time constraints.......everything is about liquidity for a trader

 

[Superb Parrot]

The Owner of the share recieves a premium.
The borrower sells the share with the intent of buying it back at a later date and pocketting the difference.
Hence giving back the owner his shares.
Standard practice for shorting.

Now pray tell how do I short a house?

Thanks for your patience, I am not necessarily against it, just trying to get a handle on its place in the scheme of things. I will check the ASX site.

Short a house ?, sell it pay the owner a premium, buy it again and hand it back....yes, too illiquid, but I was thinking that it was only another asset class.

Sydney residential housing market sure needs some price discovery !

 

[wayneL]

Broken record time:

For every sale, short selling does not cause prices to go down more.

EVERY traders who short sells MUST buy at some point in the future.

Whereas a trader who simply sells out a position may never buy that stock ever again.

Short selling makes a stock rally harder because of shorters cover their position.

 

[Joules MM1]

Broken record time:

For every sale, short selling does not cause prices to go down more.

.

this is incorrect....."every" is an incorrect assumption....in some cases short sales are used especially to add sell liquidity, to add weight of numbers and the inability or the lack of desire for buy-side liquidity to come up and swamp the selling allows price to decline.....that doesnt mean there arent a ton of buers below, afterall, in some uptrends the buyers think why rush there's selling and does it matter if i'm buying from someone who's closing a long or someone who's opening a short?

The buyers perspective is often completey different to the seller....strange that......

an accummulator might look at an equities ratio of stock at short sale.....if shorts are at a peak near the bottom of a trend some buyers might wait for a sign that there's selling exhaustion, rush in and cause a squeez.....in that instance their lack of participation to push the bid is the reason price is declining inclusive of extra selling.......

 

[john12]

short selling is a good thing because it provides us with more opportunities to make money, which is what we are all trying to do isnt it? short sellers can lose too, if the price rises and they hold on hoping it goes down ...