4 ms·

Short selling is not revolutionary at all. Options and short selling are perfectly normal market instruments that have far ranging utility, including both hedgi

Short selling is not revolutionary at all. Options and short selling are perfectly normal market instruments that have far ranging utility, including both hedging securities and insurance on tangible goods (e.g. a pork farmer buying puts on pork to ensure he can sell his product at a specific price). Neither is it "radical" in any type of market. It just means selling something you don't actually have yet (something you're "short"). Think of a middleman who sources classic cars. He contractually agrees to sell a 1991 Ferrari for $60k. He doesn't yet own the vehicle, but knows he can source them for $50k. Unfortunately for him, a recently popular meme has gassed the price of Ferraris, and he now has to pay $70k for the car. He's still obligated to sell at $60k, so he begrudgingly takes delivery and loses $10k, having "sold short" the car. Is he revolutionary or radical?

PaulDavisThe1st 6y ago
Let me put it like this. The Romans would never have allowed this. Arab marketplaces? I'm not sure.
- nradov 6y ago
  The Roman empire fell so why should we care what they thought about securities trading?
- tomatocracy 6y ago
  Forward sale contracts (selling crops which didn't yet exist for example) were commonplace in the Roman empire and wholly valid under Roman law.
  - PaulDavisThe1st 6y ago
    Forward contracts and futures contracts have a number of important differences. Most notably, futures contracts involve assets that already exist, but will be traded in the future. Forward contracts involve assets that do not (typically) exist at the time of the contract, and will not be traded if they do not exist at the contract's specified date. They also serve quite different purposes for a society/economy.
    - tomatocracy 6y ago
      Whilst there are difference, I'm not sure it's really true that the underlying always exists for futures. The main difference between the two is that futures are standardised contracts traded on an exchange and typically subject to daily margining/price settlement which has some impact on the behaviour of their price over time. Futures are useful to a broader group of people precisely because they don't need to involve physical settlement. Many people use commodity futures to hedge exposures to the price of assets which are not the underlying in the future but where there is a relatively predictable relationship between the two prices. Others use them to speculate on prices despite having no ability to deliver or take delivery of the underlying. Some contracts are even purely cash-settled. (Edit: made clear that it was the point that futures always involve an underlying which already exists I disagreed with.)

PaulDavisThe1st 6y ago

Let me put it like this. The Romans would never have allowed this. Arab marketplaces? I'm not sure.

nradov 6y ago
The Roman empire fell so why should we care what they thought about securities trading?
tomatocracy 6y ago
Forward sale contracts (selling crops which didn't yet exist for example) were commonplace in the Roman empire and wholly valid under Roman law.
- PaulDavisThe1st 6y ago
  Forward contracts and futures contracts have a number of important differences. Most notably, futures contracts involve assets that already exist, but will be traded in the future. Forward contracts involve assets that do not (typically) exist at the time of the contract, and will not be traded if they do not exist at the contract's specified date. They also serve quite different purposes for a society/economy.
  - tomatocracy 6y ago
    Whilst there are difference, I'm not sure it's really true that the underlying always exists for futures. The main difference between the two is that futures are standardised contracts traded on an exchange and typically subject to daily margining/price settlement which has some impact on the behaviour of their price over time. Futures are useful to a broader group of people precisely because they don't need to involve physical settlement. Many people use commodity futures to hedge exposures to the price of assets which are not the underlying in the future but where there is a relatively predictable relationship between the two prices. Others use them to speculate on prices despite having no ability to deliver or take delivery of the underlying. Some contracts are even purely cash-settled. (Edit: made clear that it was the point that futures always involve an underlying which already exists I disagreed with.)