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Originally posted by jefwane
Not quite sure I get where you are coming from OP. Sure there are plenty of things about short selling that could be tweaked. I'd like to see the FTD issue addressed. I also don't think anyone should be able to naked short.
Short selling should not be banned however. You might as well make it illegal to sell stocks, that way the market would only go up right. Short selling benefits the market in several ways. It adds liquidity to markets.
It allows better price discovery. It incentivises those of a skeptical demeanor to seek out companies that are quite frankly turds and profit from there fall.
It does put some support on prices as shorts must cover (which means buying a stock) to close a position, sometimes even to the point of a short covering rally. With no shorting several hedging strategies are not viable.
There are some things I'd like to see better enforced. Market rumors that damage a stock and are unsubstantiated as well as market rumors that could pump a stock (ie Buffet buying something like last fall) and are unsubstantiated should be prosecuted with equal vigor.
Shorting is currently forbiden against almost all financials yet the XLF fell over 13% today and most if not all stocks in that etf are currently unshortable.
Originally posted by jefwane
I'm not getting your argument at all. If I choose to short a stock, I'm taking a big risk if I'm wrong. Even more than if I buy (=go long) a stock. If I buy a stock my downside is limited to if the stock goes to zero, a defined risk. If I short a stock and am wrong my potential losses are infinite. Example I buy 1000 shares of xyz at $10 for a total long of $10,000 my maximum risk is $10,000 if the company goes bankrupt with my upside only limited by the rise of the stock. If i short xyz 1000 shares @$10 a share i borrow those shares sell them for a $10,000 credit to my account i now have an open short position. If XYZ goes BK and to zero per share I make 10,000. If xyz goes to $5 a share and I decide to cover I have to buy 1000 shares @$5 a share leaving me a credit to my account of $5,000.If xyz suddenly finds a donkey that poops gold I must buy shares to close my short. If those shares are now $15 a share I must buy 1000 shares for $15,000 (10,000 of the initial credit + another $5,000 of my money) to cover. Shorts put potential infinite losses on the line for a defined maximum gain.
There is a place for the short seller in our system. I'm all for certain reforms, but removing the abillity to short is a desperate attempt to 1) Find a scapegoat 2) keep things together 3) Protects dead and dying institutions from the vultures who play an improtant role in the ecology of free markets.
What is wrong with volatility?
I know it can cause some heartburn at time, but at the end of the day I'd rather buy a stock that has a higher average volume of shares traded than one that is thinly traded. The bid ask spreads on the thinner issues can be larger, and thinly traded stocks are easier to manipulate.
That does not make them virtuous. We are talking about the phenomenon itself, not the basic bookwork that makes them a result of allowing it in logic(k). The point is that you go short on a company, you had no prior interest. Why should you be allowed to affect your views on that company?
In my personal opinion, there should be NO publicly traded companies, except for utilities.
am against short selling. i think it should be illegal for every stock and any other security.