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Every transaction has a buyer and a seller. Shorting is selling? Selling to whom? Ah, right, a buyer. Telsa share price has risen through extreme short intere

Every transaction has a buyer and a seller. Shorting is selling? Selling to whom? Ah, right, a buyer. Telsa share price has risen through extreme short interest for years. How?

AnthonyMouse 8y ago
> Shorting is selling? Selling to whom? Ah, right, a buyer. A buyer who would otherwise have had to buy from a seller who wanted a higher price. The stock price is really the value for which shares were most recently exchanged. If the price is $500, shares were exchanged for $500. That isn't the same as what other people value the shares at, which is different for each person. The people who own shares value them at more than their market price (or they would sell) and the people who can afford but don't own shares value them less (or they would buy). Someone could own shares and value them at $600, so they wouldn't even sell at $550, meanwhile another owner values them at no more than $500.02, so they sell as soon as the price hits $500.02. That's where the bid/ask spread comes from. The lowest seller values the shares at $500.02, the highest buyer values them at $499.98, so the seller keeps their shares and the buyer keeps their money, and the share price is still considered to be $500.00 because that's what the last actual sale went through as. To get another transaction either the seller or the buyer has to "cross the spread" and meet the other side's price and then the price goes up or down based on whether it was the buyer or the seller. So what happens when someone makes a short sale? They borrow shares and cross the spread to sell for $499.98. Now the share price has gone down two cents. Moreover, the buyer willing to pay $499.98 now has their shares. The next highest bid is $499.97. If another short seller supplies that buyer with shares, the share price drops again and so does the bid price, because the previous high bid already has their shares. The more short sellers, the lower the sale price. This is one of the reasons why short selling is frequently unprofitable. If you're not an early short seller, you're selling shares for $450 that all else equal would be worth $500 once the existing shorts close their positions, and at some point you have to buy them back. Which means to make money the company doesn't just have to lose value, it has to fail hard enough to prevent your profits from being erased by other shorts buying back shares to close their positions. > Telsa share price has risen through extreme short interest for years. How? If the share price would rise by $3 while short selling would cause it to decline by $1 then on net the price rises by $2, i.e. $1 less than it would have but still a positive value.
greenshackle2 8y ago
It doesn't sound like you understand how stock markets work. A limit order doesn't necessarily get filled immediately, or at all. If there is a lot more volume in sell orders than buy orders on the book, it is a buyer's market and price will go down. Inversely if there is more buy order volume, it is a seller's market, and price will go up. I don't know if shorts have affected the price of Tesla significantly. This is really fact-specific and I didn't do the research. But the principle is sound.

Every transaction has a buyer and a seller. Shorting is selling? Selling to whom? Ah, right, a buyer. Telsa share price has risen through extreme short interest for years. How?

AnthonyMouse 8y ago

> Shorting is selling? Selling to whom? Ah, right, a buyer. A buyer who would otherwise have had to buy from a seller who wanted a higher price. The stock price is really the value for which shares were most recently exchanged. If the price is $500, shares were exchanged for $500. That isn't the same as what other people value the shares at, which is different for each person. The people who own shares value them at more than their market price (or they would sell) and the people who can afford but don't own shares value them less (or they would buy). Someone could own shares and value them at $600, so they wouldn't even sell at $550, meanwhile another owner values them at no more than $500.02, so they sell as soon as the price hits $500.02. That's where the bid/ask spread comes from. The lowest seller values the shares at $500.02, the highest buyer values them at $499.98, so the seller keeps their shares and the buyer keeps their money, and the share price is still considered to be $500.00 because that's what the last actual sale went through as. To get another transaction either the seller or the buyer has to "cross the spread" and meet the other side's price and then the price goes up or down based on whether it was the buyer or the seller. So what happens when someone makes a short sale? They borrow shares and cross the spread to sell for $499.98. Now the share price has gone down two cents. Moreover, the buyer willing to pay $499.98 now has their shares. The next highest bid is $499.97. If another short seller supplies that buyer with shares, the share price drops again and so does the bid price, because the previous high bid already has their shares. The more short sellers, the lower the sale price. This is one of the reasons why short selling is frequently unprofitable. If you're not an early short seller, you're selling shares for $450 that all else equal would be worth $500 once the existing shorts close their positions, and at some point you have to buy them back. Which means to make money the company doesn't just have to lose value, it has to fail hard enough to prevent your profits from being erased by other shorts buying back shares to close their positions. > Telsa share price has risen through extreme short interest for years. How? If the share price would rise by $3 while short selling would cause it to decline by $1 then on net the price rises by $2, i.e. $1 less than it would have but still a positive value.

greenshackle2 8y ago

It doesn't sound like you understand how stock markets work. A limit order doesn't necessarily get filled immediately, or at all. If there is a lot more volume in sell orders than buy orders on the book, it is a buyer's market and price will go down. Inversely if there is more buy order volume, it is a seller's market, and price will go up. I don't know if shorts have affected the price of Tesla significantly. This is really fact-specific and I didn't do the research. But the principle is sound.