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Shorting and Indian capital markets

zerodha.com

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Re: Shorting and Indian capital markets

#11

Post by ignoramous »

> While everyone is celebrating retail traders winning over a large hedge fund in this case, it rarely ever plays out this way. Most commonly, retail ends up losing money when there is excessive speculation.

This is the only passage anyone with too much at stake (than they can afford) in this short needs to read.

Other than that, I believe industry insiders / traders are missing the mark in that the current dynamic is also fueled in part by a million-strong (if not more?) rejecting the fundamentals and pumping cash in to businesses that Wall Street's hive mind has decided has no job being in existence.

AMC made a billion dollars during the rally [0] (and it is not lost on me that this capital would be dumped into parachute payments and bonuses to c-suite and nothing's going to trickle-down). In the off-chance AMC makes the capital work, then, that'd have vindicated retail, but it kind of seems too optimistic but that's the whole point.

[0] https://movieweb.com/amc-theatres-raises-one-billion-dollars...

Re: Shorting and Indian capital markets

#12

Post by mmmateo »

RobertoG wrote: post #10

>>"In some of these stocks, the total quantity of stocks shorted (stocks borrowed and sold + using derivatives) is much more than the free float or the total number of shares held publicly. " So, they short more stocks that exist. OK, I will not ask why this is allowed, but how is this done?

When you lend someone a stock you borrowed, it’s considered an additional ‘stock shorted’

Re: Shorting and Indian capital markets

#13

Post by nico_h »

mmmateo wrote: post #12
RobertoG wrote: post #10

>>"In some of these stocks, the total quantity of stocks shorted (stocks borrowed and sold + using derivatives) is much more than the free float or the total number of shares held publicly. " So, they short more stocks that exist. OK, I will not ask why this is allowed, but how is this done?

When you lend someone a stock you borrowed, it’s considered an additional ‘stock shorted’

And the entity that bought it from the short seller can lend it to someone else, leading to two short shares, etc...

Also, there is a difference between 100% of the stock and 100% of the float. Because in theory the institutions holding could alter their positions or lend their shares as well.

Re: Shorting and Indian capital markets

#15

Post by WJW »

ignoramous wrote: post #11

> While everyone is celebrating retail traders winning over a large hedge fund in this case, it rarely ever plays out this way. Most commonly, retail ends up losing money when there is excessive speculation. This is the only passage anyone with too much at stake (than they can afford) in this short needs to read. Other than that, I believe industry insiders / traders are missing the mark in that the current dynamic i…

Eventually, either the Wall Street "hive mind" (really though, WS contains thousands of funds and many would be overjoyed to see some competitors fall) or the retail buyers of these companies will be proven wrong. What happens next is way more interesting than the current situation.

Even if it turns out that GME can be short squeezed until there is not a single share shorted anymore, the retail investors will then collectively be HODLing a ton of stock in a company losing hundreds of millions per year. Buying pressure for such stocks is typically low. There is no way everyone can get out at the top, so a lot of people will have to sell at very low prices. This is even true if the original thesis of "we can pump this stock to $1000" is true.

Re: Shorting and Indian capital markets

#16

Post by mensetmanusman »

I am glad they addressed the philosophical question of whether shorting the stocks should be illegal.

I have more confidence in our equities markets because of the existence of short sellers. I’m glad to know there are people researching companies that are not being honest about their financials.

If there were another way to incentivize finding these types of companies without short selling, I would be interested.

Re: Shorting and Indian capital markets

#17

Post by kumarvvr »

RobertoG wrote: post #10

>>"In some of these stocks, the total quantity of stocks shorted (stocks borrowed and sold + using derivatives) is much more than the free float or the total number of shares held publicly. " So, they short more stocks that exist. OK, I will not ask why this is allowed, but how is this done?

Its like you leasing your house. Your assets still show the house. The lease holders address is the house. If you just see the records, there are two houses. But if you actually count, thereis 1 physical house.

Re: Shorting and Indian capital markets

#18

Post by mschuster91 »

mensetmanusman wrote: post #16

I am glad they addressed the philosophical question of whether shorting the stocks should be illegal. I have more confidence in our equities markets because of the existence of short sellers. I’m glad to know there are people researching companies that are not being honest about their financials. If there were another way to incentivize finding these types of companies without short selling, I would be interested.

> If there were another way to incentivize finding these types of companies without short selling, I would be interested.

In ye olde times before the invention and institutionalization of short selling and other financial instruments, this kind of research was the responsibility of the media (to raise the alarm) and the SEC/police (to investigate claims with the authority of the government, and prosecute offenders).

Unfortunately, most newsrooms have been "consolidated" or shut down entirely as the market for quality journalism has declined over the last decades, and there is an unhealthy "revolving door" between banks, hedge funds and other market players on one side, and regulatory agencies on the other side.

Re: Shorting and Indian capital markets

#19

Post by teruakohatu »

kumarvvr wrote: post #17
RobertoG wrote: post #10

>>"In some of these stocks, the total quantity of stocks shorted (stocks borrowed and sold + using derivatives) is much more than the free float or the total number of shares held publicly. " So, they short more stocks that exist. OK, I will not ask why this is allowed, but how is this done?

Its like you leasing your house. Your assets still show the house. The lease holders address is the house. If you just see the records, there are two houses. But if you actually count, thereis 1 physical house.

It's more like you lease a house from the owner and then lease it out again. There are two leases, but only one house. The house has been leased 200%.

Re: Shorting and Indian capital markets

#20

Post by seanhunter »

blueblisters wrote: post #4

Zerodha (top Indian broker) posted an article earlier which explained why the Indian brokerage industry has very few avenues to make revenue: https://zerodha.com/z-connect/rainmatter/the-race-to-zero-ca... The lack of any mechanism for payment for order flow is quite interesting - how do market makers get incentivized to provide liquidity in such situations? Or asked another way, are American market makers being subs…

Market makers are incentivized to provide liquidity by the fact that they earn half the spread on average every time they trade. If a stock trades for 10 bid 11 offer then the market maker makes 1 every time they buy at 10 and sell at 11. They do this a very large number of times a day.

I'm not sure this still happens, but Marketmakers (and broker dealers) also used to earn rebates from new venues to incentivise them to trade on MTFs (multilateral trading facilities or alternative execution venues).

You'll hear a lot of people talking about market makers (eg Citadel) paying for flow. The common opinion is that this is because that flow contains information that the marketmaker can profit from. This is almost never the case, and in fact if the flow has alpha (positive or negative) or is overly directional that's not great for the marketmaker as they are forced to temporarily take the other side of that trade and try to find unwinds. Marketmakers want more flow because that makes it easier for them to do their job of hedging their inventory and unwinding positions with minimal impact. They are betting on the underlying math that if the flow gets large enough it becomes zero alpha by definition and they can just earn the spread.

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