Stock Market - Market Manipulation Exposed Worldwide by WallStreetBets!

Apodemus

bery_451 said:

Reaper said:

bery_451 said:

How do you short 140% of a company stock  ? Sounds impossible.

2 ways:

Imagine you lend me some shares and I sell them to somebody else. That somebody can now lend them out to another hedge fund who sells them. So the same shares have now been shorted twice.

The other way is a "naked short" in which a hedge fund sells shares they don't own and has to go out and buy some before the settlement date. However I believe there are some restrictions on this method to stop things getting too crazy.

This sounds illegal, its like a ponzi scheme or a scam. Why do the financial regulators allow this?
Its like me selling my house or car twice, getting double sales revenue for a single item!

No, it's more like you selling an item on ebay and hoping you can pick it up from Amazon at a cheaper price before you need to post it.

idkwhattosay

Apodemus said:

No, it's more like you selling an item on ebay and hoping you can pick it up from Amazon at a cheaper price before you need to post it.

That's true for short selling, not for naked shorting.

If you borrow my iPhone for a small fee and then sell it to someone for £1000, then buy a new one for £500 and return it to me for a profit of £500 you still need my CONSENT! That's short selling. If I tell you NO and then you pick my pockets, steal my iPhone and sell it quickly for a profit and return a new one back into my pocket as I wasn't looking, that's THEFT because there's no CONSENT. That's naked short selling. And that's F* illegal!

Malthusian

bery_451 said:

This sounds illegal, its like a ponzi scheme or a scam. Why do the financial regulators allow this?
Its like me selling my house or car twice, getting double sales revenue for a single item!

Naked short selling is more like selling a car I don't have in the expectation of buying it for cheaper before I have to deliver it. Naturally there's a risk that I can't find one, at which point I say "ha ha ha sucks to be you, guess you'll have to make me bankrupt but good luck taking my council flat". That's why naked short selling is usually illegal, because it dumps the risk on everyone else and creates a false market through trades that can't actually be fulfilled.

In itself, there's nothing wrong with lending the same share twice if it actually exists. No different to a bank borrowing money from another bank which it then lends to its customers. As long as everyone stays solvent (which in the context of short selling is supposed to be achieved by collateral / margin calls) there's no problem. And even if they don't, that's the risk you take when you lend money.

Eco_Miser

idkwhattosay said:

 If I tell you NO and then you pick my pockets, steal my iPhone and sell it quickly for a profit and return a new one back into my pocket as I wasn't looking, that's THEFT because there's no CONSENT. That's naked short selling. And that's F* illegal!

That's not really what naked short selling is.

It's more like selling a phone for delivery in two days time, THEN going out and buying one, hopefully at a lower price. No theft involved.

BananaRepublic

Malthusian said:

bery_451 said:

This sounds illegal, its like a ponzi scheme or a scam. Why do the financial regulators allow this?
Its like me selling my house or car twice, getting double sales revenue for a single item!

Naked short selling is more like selling a car I don't have in the expectation of buying it for cheaper before I have to deliver it. Naturally there's a risk that I can't find one, at which point I say "ha ha ha sucks to be you, guess you'll have to make me bankrupt but good luck taking my council flat". That's why naked short selling is usually illegal, because it dumps the risk on everyone else and creates a false market through trades that can't actually be fulfilled.

In itself, there's nothing wrong with lending the same share twice if it actually exists. No different to a bank borrowing money from another bank which it then lends to its customers. As long as everyone stays solvent (which in the context of short selling is supposed to be achieved by collateral / margin calls) there's no problem. And even if they don't, that's the risk you take when you lend money.

Isn’t this risking a 2008 crash if the amount of money a short seller owes is huge, and they default? After all, if they owe someone, who owes someone, who owes someone, you end up with a chain reaction and a bang when various parties collapse. 

As I understand it LTCM was bailed out to prevent that scenario. In the end the government made a slight profit on the bail out, ignoring staff costs. 

Thrugelmir

BananaRepublic said:

Malthusian said:

bery_451 said:

This sounds illegal, its like a ponzi scheme or a scam. Why do the financial regulators allow this?
Its like me selling my house or car twice, getting double sales revenue for a single item!

Naked short selling is more like selling a car I don't have in the expectation of buying it for cheaper before I have to deliver it. Naturally there's a risk that I can't find one, at which point I say "ha ha ha sucks to be you, guess you'll have to make me bankrupt but good luck taking my council flat". That's why naked short selling is usually illegal, because it dumps the risk on everyone else and creates a false market through trades that can't actually be fulfilled.

In itself, there's nothing wrong with lending the same share twice if it actually exists. No different to a bank borrowing money from another bank which it then lends to its customers. As long as everyone stays solvent (which in the context of short selling is supposed to be achieved by collateral / margin calls) there's no problem. And even if they don't, that's the risk you take when you lend money.

Isn’t this risking a 2008 crash if the amount of money a short seller owes is huge, and they default? After all, if they owe someone, who owes someone, who owes someone, you end up with a chain reaction and a bang when various parties collapse. 

As I understand it LTCM was bailed out to prevent that scenario. In the end the government made a slight profit on the bail out, ignoring staff costs. 

Short sellers won't default. They'll simply liquidate other holdings to cover the losses. What it does create is instability in the wider market. Fire sales help no one. 

BananaRepublic

Thrugelmir said:

BananaRepublic said:

Malthusian said:

bery_451 said:

This sounds illegal, its like a ponzi scheme or a scam. Why do the financial regulators allow this?
Its like me selling my house or car twice, getting double sales revenue for a single item!

Naked short selling is more like selling a car I don't have in the expectation of buying it for cheaper before I have to deliver it. Naturally there's a risk that I can't find one, at which point I say "ha ha ha sucks to be you, guess you'll have to make me bankrupt but good luck taking my council flat". That's why naked short selling is usually illegal, because it dumps the risk on everyone else and creates a false market through trades that can't actually be fulfilled.

In itself, there's nothing wrong with lending the same share twice if it actually exists. No different to a bank borrowing money from another bank which it then lends to its customers. As long as everyone stays solvent (which in the context of short selling is supposed to be achieved by collateral / margin calls) there's no problem. And even if they don't, that's the risk you take when you lend money.

Isn’t this risking a 2008 crash if the amount of money a short seller owes is huge, and they default? After all, if they owe someone, who owes someone, who owes someone, you end up with a chain reaction and a bang when various parties collapse. 

As I understand it LTCM was bailed out to prevent that scenario. In the end the government made a slight profit on the bail out, ignoring staff costs. 

Short sellers won't default. They'll simply liquidate other holdings to cover the losses. What it does create is instability in the wider market. Fire sales help no one. 

LTCM was at risk of going under, and the sums involved were huge. I’m not talking about a small event like gamestop, which had the effect you mention. 

Thrugelmir

BananaRepublic said:

Thrugelmir said:

BananaRepublic said:

Malthusian said:

bery_451 said:

This sounds illegal, its like a ponzi scheme or a scam. Why do the financial regulators allow this?
Its like me selling my house or car twice, getting double sales revenue for a single item!

Naked short selling is more like selling a car I don't have in the expectation of buying it for cheaper before I have to deliver it. Naturally there's a risk that I can't find one, at which point I say "ha ha ha sucks to be you, guess you'll have to make me bankrupt but good luck taking my council flat". That's why naked short selling is usually illegal, because it dumps the risk on everyone else and creates a false market through trades that can't actually be fulfilled.

In itself, there's nothing wrong with lending the same share twice if it actually exists. No different to a bank borrowing money from another bank which it then lends to its customers. As long as everyone stays solvent (which in the context of short selling is supposed to be achieved by collateral / margin calls) there's no problem. And even if they don't, that's the risk you take when you lend money.

Isn’t this risking a 2008 crash if the amount of money a short seller owes is huge, and they default? After all, if they owe someone, who owes someone, who owes someone, you end up with a chain reaction and a bang when various parties collapse. 

As I understand it LTCM was bailed out to prevent that scenario. In the end the government made a slight profit on the bail out, ignoring staff costs. 

Short sellers won't default. They'll simply liquidate other holdings to cover the losses. What it does create is instability in the wider market. Fire sales help no one. 

LTCM was at risk of going under, and the sums involved were huge. I’m not talking about a small event like gamestop, which had the effect you mention. 

The rules have changed. LTCM was over 20 years ago. Naked selling is banned. Hedge funds these days manage portfolios for a whole range of clients including pension funds , universities, charitable foundations etc.  

Short sellers have lost far more shorting Tesla than GameStop.