151–160 of 403 posts
This is not what elasticity means here. In fact, the demand shown in the picture is not infinitely elastic.
I find articles like this fascinating because to me they are indicative of just how substantial the magnitude is of the "bounty of capitalism" in the public markets. On the one hand you have returns available to anyone prepared to invest consistently in the stock market across the last 30 years that are both well documented and very substantial. People like Warren Buffet & boggleheads make data-backed arguments about…
Earlier quoted context omitted.
How are they functionally the same? Initial conditions: Alice has a share of XYZ Proper shorting: Alice lends her share to Bob, Bob sells the share to Carol => Alice has a share (lent to Bob, who will have to pay her the eventual dividends), Bob owes a share to Alice, Carol has a share (which has full rights including voting and dividend) Naked shorting: Bob sells an imaginary share to Carol => Alice sill has her sha…
In the situation being discussed, where more shares than the available float are shorted, they are functionally the same because both can theoretically create infinite amounts of shares.
Would you rather be the Carol who bought the XYZ stock that Alice lent to Bob or the other one?
Proper-shorting-scenario Carol owns a perfectly good XYZ share.
What does naked-shorting-scenario Carol have?
The author seems to be really upset about this, but I don't understand why. Nothing they are describing, if you ignore histrionic language like "counterfeiting", seems especially nefarious. Maybe I am misunderstanding. Basically, a short is when A borrows from B a share of corporation C with the promise to return a share of corporation C at a later time, plus some cash interest. A naked short is where instead B gives…
If there are 5 bananas in the entire world and people are still allowed to pretend and sell 500 bananas - you dont see how this is a problem? Have you actually thought this through?
You can't have 500 net buys (i.e. someone is 'long 500 bananas', or 500 people 'long' 1, etc.), but sales, fine!
Earlier quoted context omitted.
What your describing still sounds incredibly dodgy. The price of anything is a result of its some intrinsic value and the volume of supply. So a precious stone is valuable because of its beauty, but also because it's rare. If someone mines a billion such stones, it won't affect their individual beauty, but it will certainly reduce the price someone is willing to pay for one. Now, you seem to be saying that short sell…
> naked short selling at volume will create a self-fulfilling prophecy To be super clear, naked short selling is banned for everyone but market makers [1]. A market maker goes naked short when there is a buying frenzy. Their economic incentive is to then cover the short given they are in a buying frenzy . The NYSE explicitly markets its specialist system to issuers as a stabiliser mechanism. It’s a selling point to l…
After all, we allow something similar to naked short selling when people write options or trade futures. And those markets work just fine.
This is mostly nonsense. There is nothing wrong with there being more shares short than shares outstanding. It just seems problematic, until you think it through. Person A has 1 share of company Y. Person B borrows 1 share of company Y from person A, and then sells it into the market. This is called a short sale. But person B just sold their borrowed share. Now that share is owned by person C. Person C can now lend i…
> Shorting behaves the same way that fractional reserve banking does Yes. Except that the fractional reserve banking system has a lender of last resort.
Historically, systems without lender of last resort have done quite well. See eg the Canadian system of the 19th century, with no lender of last resort, and that often ended up as an emergency lender to the mis-regulated and crisis-prone American system to the south.
Earlier quoted context omitted.
If I want insurance to protect against the price going down, I'd buy a put option. I know a bit about this but I'm not an expert on this. Naively, those put options are effectively offered by those providing a short (they think the price is going to go down, or have a way to hedge the price decrease). Those don't get represented as shorts either. https://corporatefinanceinstitute.com/resources/knowledge/tr... The oth…
Options are bets in a way that actual sales aren't. Notably, a put explicitly a contract to sell something at a given price in the future. Nobody buying or selling a put has any intention of stock trading hands -- and the option can even be written as cash-only, where stock never actually does. So while selling a put is the same fundamental idea as a short ("I think the price will go down"), it's mechanically very di…
(If you write a put and a call for the same strike, you are basically in the same position as a short seller. If you buy a put and a call for the same strike, you are economically in the same position as an owner of the stock.)
Hence, you can't separate options from stocks.
The author seems to be really upset about this, but I don't understand why. Nothing they are describing, if you ignore histrionic language like "counterfeiting", seems especially nefarious. Maybe I am misunderstanding. Basically, a short is when A borrows from B a share of corporation C with the promise to return a share of corporation C at a later time, plus some cash interest. A naked short is where instead B gives…
When I purchase a stock, I do it in the express belief that I will get a physical (though digitally stored) share of that company, and possibly one that gives me a voting right if the stock is marked as such. When a stock “fails to clear” this gives me a ton of problems such as slippage and volatility, and possibly a quite substantial loss. Same if you buy an apple, I'm sure you'd only do it in the belief that you wi…
'a physical share' No. There's no such thing. Even a physical share certificate is not a physical share. It's a physical piece of paper which documents a nebulous thing - the set of rights you have, and terms between you, the company, its management and other shareholders.
'slippage and volatility'. No. You bought the share at the price you were filled on. No slippage. One share gets lent out, one share gets returned. You are not affected by volatility in any way, because the share your get back is exactly the same as the one you lent, and the price change would have affected you anyway.
'A substantial loss' When a share your broker lent out fails to deliver (which you would never know about), the broker doesn't write to you and say 'oops, your share didn't make it back, your loss'. First of all they didn't write your name on the same before they lent it. They have a bunch of shares which they lend out. Secondly, someone will have to produce either the share or the exact amount of money required to buy an identical share at some point. Thirdly, even if they didn't, the broker would make good any loss, whether inadvertent or due to some mysterious malfeasance. That's literally the reason your broker holds capital and is regulated.
A share is not like an apple. You buy a share with the clear intention of selling it to someone else one day. It's a speculative activity par excellence. People who buy apples in order to trade them are generally quite comfortable with the fact that 'their apples' are in reality just a binding contract on someone else to produce those apples when asked. In the same way, the bank does not have 'your money' in a pot somewhere. They just promise to produce it under certain conditions, and there are regulations making sure they keep this promise. I get that some people think this in itself is suspect, but if so, you are opposed to most aspects of modern finance, why pick on short sales?
If you buy a share, your order to buy one will most definitely be met. They can't lend out something that hasn't been bought. You might be confusing short selling with another bugbear, order internalisation and PFOF.
> If instead my money is “borrowed” without my concent for some nefarious activity
What activity? Who is borrowing your money?
> whose money is being stolen Your money was used to buy the share.
Want to sell the share? It's there. Want to vote the share? It's there provided that you actually paid for it with cash. Oh, you bought the share on margin? Well, the same as a car which you borrowed money to buy, the share does not fully belong to you in those circs. So depending on the rules, you might not be able to vote it.
> That these shares do not exist, isn't some slip-up. The share definitely exists. Allowing retail investors to bet on shares going up and down without any actual shares trading hands is illegal, since the 1930s.
'without your knowledge'. Everyone knows about this. That's literally why we're taking about it.
>loan it out in order to sell it in the hopes of earning money if its value drops The broker doesn't earn money if its value drops. They lend out a share, they get back an identical share.
>Clearly you'd want to know if your property is being loanded out, because it means that you're incurring risk
No more risk than the general risk that your broker (or bank) will fail, that the regulator got it wrong and they don't have enough money to pay everyone back, and that the govt won't step in if this happens.
And you do know.
And you are allowed to ask them not to do it. If you paid cash for the share.
Oh, you bought the share on margin? So the broker stole someone else's money from their pot at the bank where they thought it would be taken care of, lent it to you for nefarious activity, and you spent their money on a share you couldn't afford yourself, with the express intent of making the price go up? Shouldn't that be illegal? No, margin investing is conceptually very similar to short selling and is also an accepted part of modern finance. The broker lends you money, you buy a share, you hope it goes up, when you sell the share you pay back the money. The broker lends a short seller a share, they sell it, hold onto the money, hope it goes down, when they buy back the share they give it back to the broker.
There are tons of problems with finance and financialization in modern society. This isn't one of them.
Earlier quoted context omitted.
> Same if you bought a stock, and your broker suddenly decides to steal it without your knowledge You have agreed to it at some point. If your broker doesn't give you a choice you may go to another broker.
That is a generic and ideological objection. If that was the case we would never need any regulations, just T&Cs. I get that some people believe that, but equally some people believe such a world would have way too much friction.
However, this argument does not apply to regulations that lower barriers to entry, because low barriers to market entry are exactly what enables competition.
(Most regulations, alas, raise barriers to entry. Even if that's not their intended purpose.)
Very, very much a crank site. One pinch fact, two cups of confusion, and generous splash of seething rage. It's interesting in much the way the Timecube site is interesting...and is informative about financial markets in much the same way the Timecube site is as well.
This entire topic has been poorly addressed. I don’t think I’ve had stronger Gell Mann vibes on HN than I’m having with this story.