14 ms·

Shorting and Indian capital markets

225 points by chedine 6y ago

Trex_Egg 6y ago
Nooooooooooooooo!!!!!!!!!!!!!!!!!
Marciplan 6y ago
How does this article with 1 comment as of this writing land at #1 on HN?
- the-dude 6y ago
  By acquiring 33 votes in 33 minutes. And shorting is kinda hot right now.
- ignoramous 6y ago
  The article itself is well-written (contrasting the Indian stock markets and how it benefits from being younger than their US counterpart which is beholden to incumbents lobbying for the status-quo and a century old legacy system with enough loopholes than SEC can plug). It could be that no one really has strong opinions one way or the other to what's being said (expected since Nithin Kamath, who wrote the article, is level-headed and pragmatic, as usual) to comment.
- detaro 6y ago
  Not having comments is irrelevant for the ranking.
blueblisters 6y ago
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-can-indian-brokerage-industry-survive 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 subsidized by retail traders?
- kgwgk 6y ago
  > how do market makers get incentivized to provide liquidity in such situations? Buy low, sell high. PS: By the way, I'm not sure I understand the question. Market makers are the ones who pay for the order flow.
  - smabie 6y ago
    maker rebates also are a pretty significant incentive
- seanhunter 6y ago
  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.
  - twic 6y ago
    To expand on this a little for anyone interested, the problem with classical market-making is that you only make money as long as the trades are crossing back and forth around a stationary price. If the market moves suddenly, you end up losing money. In your example, if a huge sell comes in at 10, and the market then moves down to 8 bid, 9 offered, the market maker has a position they bought at 10, but can only sell at 9 at best. So, profitability depends on the ratio of the nice "random crossing" to the nasty "toxic flow". The toxic flow tends to come from large, well-informed market participants who can act very quickly. That means institutional players with colocated trading machines and so on. There are none of those on retail brokerages, so retail flow has a great ratio of random crossing to toxic flow, and so market makers are happy to pay for it. Meanwhile, the exchange itself is crowded with players like that, and there's a worse ratio, so market makers are a lot more wary. This is why market makers invest a lot in low-latency trading. If you can find out about an impending market move, and cancel your resting orders before other participants cross into you, you can dodge the toxic flow, and have a better chance of making money. Longer explanation: https://insights.deribit.com/market-research/toxic-flow-its-sources-and-counter-strategies/ https://insights.deribit.com/market-research/toxic-flow-its-... Unrelatedly, another source of revenue for market makers is maker-taker pricing, where the person crossing the market pays a little fee to the person who rested the order they crossed into: https://www.investopedia.com/articles/active-trading/042414/what-makertaker-fees-mean-you.asp https://www.investopedia.com/articles/active-trading/042414/... But i'm not sure how common this is these days.
bhaavan 6y ago
A lot of movement in GME was driven by call options, which is generally available in all markets. However, absence of overnight short positions would definitely diminish the trigger GME needed to get short squeezed and become volatile in the first place.
RobertoG 6y ago
>>"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?
- mmmateo 6y ago
  When you lend someone a stock you borrowed, it’s considered an additional ‘stock shorted’
  - nico_h 6y ago
    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.
    - deleted 6y ago
      [deleted]
    - imtringued 6y ago
      >Also, there is a difference between 100% of the stock and 100% of the float. With GME both of these are abnormally high. Either of them is enough to explain the short squeeze.
  - hutzlibu 6y ago
    How is it called, when the person you lend your stock to, lend it to someone else, who lends it again to you and you lend it to the first person again? Madness? (Anyway, my actual knowledge of the stock market is limited, but is my scenario a realistic one?)
  - thargor 6y ago
    No. Shorting is selling a stock you borrowed. Multiple borrows does not make a short.
ignoramous 6y ago
> 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-avoids-bankruptcy/ https://movieweb.com/amc-theatres-raises-one-billion-dollars...
- WJW 6y ago
  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.
  - PeterisP 6y ago
    "There is no way everyone can get out at the top" - this is the big issue here - as far as I understand, the position of WallStreetBets is that there are (were?) so many shorts of GME compared to the shares on market that they would be required to buy all that stock and everyone can get out at the top. I don't feel certain about this (especially since if any of the funds actually go bankrupt, they would default on their obligations, not actually buy the shorted stock at all and just owe some not-fully-collectable money), but that seems to be the whole reason for this situation.
MrPatan 6y ago
The SEC should protect the hedge funds by preventing them from short selling
mensetmanusman 6y ago
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.
- mschuster91 6y ago
  > 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.
  - kgwgk 6y ago
    Short selling is older than the SEC.
    - cardiffspaceman 6y ago
      True. All this stuff was old-hat when the Tulip Mania "ended" in the 17th Century. There is even a tale about olive presses that reads a little like a futures contract's lifetime [1]. [1] https://www.thestreet.com/opinion/a-brief-history-of-stock-options-10595277 https://www.thestreet.com/opinion/a-brief-history-of-stock-o...
  - pbronez 6y ago
    Maybe? I think it’s really useful to give people an economic incentive to do socially useful things, like pointing out when a company is in an unsustainable position before it literally starts locking out workers. Journalists are better spent digging into political situations that aren’t directly tradable. Even if you think journalists should do the research and make results public instead of funds doing the research and keeping it private (until they reveal their conclusions through trading), I think you want shorting available as a RESPONSE to the reporting. Why would the companies change their behavior in response to negative press if they aren’t subjected to economic pain for ignoring it?
deleted 6y ago
[deleted]
deleted 6y ago
[deleted]
premiumpocket 6y ago
What reddit guys are doing should be called MEMEntum & not momentum
CTDOCodebases 6y ago
In reference to the GME/WSB fiasco the issue isn't so much the shorting itself but the large number of “fails-to-deliver”. This was happening since early December. It looked suspicious and was reported to the SEC. Read comments for receipts. https://www.reddit.com/r/wallstreetbets/comments/kr98ym/gme_gang_we_need_to_complain_about_naked_short/?utm_source=share&utm_medium=ios_app&utm_name=iossmf https://www.reddit.com/r/wallstreetbets/comments/kr98ym/gme_...
- ZephyrBlu 6y ago
  Which I believe is due to them having shorted over 100% of the float making it impossible for the shares which were shorted to be purchased.
  - wrkronmiller 6y ago
    > There are 100 shares. A owns 90 of them, B owns 10. A lends her 90 shares to C, who shorts them all to D. Now A owns 90 shares, B owns 10 and D owns 90—there are 100 shares outstanding, but190 shares show up on ownership lists. (The accounts balance because C owes 90 shares to A, giving C, in a sense, negative 90 shares.) Short interest is 90 shares out of 100 outstanding. Now D lends her 90 shares to E, who shorts them all to F. Now A owns 90, B 10, D 90 and F 90, for a total of 280 shares. Short interest is 180 shares out of 100 outstanding. No problem! No big deal! You can just keep re-borrowing the shares. F can lend them to G! It's fine. https://www.bloomberg.com/opinion/articles/2021-01-25/the-game-never-stops?sref=1kJVNqnU#footnote-3 https://www.bloomberg.com/opinion/articles/2021-01-25/the-ga...
    - pbronez 6y ago
      “It’s fine” This situation sounds like a hideous volatile time bomb of complex exponential effects.
      - vsareto 6y ago
        That's a bit overblown. Dog piling into a single stock is one thing. An entire market (that was) primed to collapse (housing) is another.
Threeve303 6y ago
This is a financial version of the social media effect we have seen spreading misinformation and causing people to act in real life. All of the ingredients are there. 1) Use social media to organize motivated groups of people 2) Align the mob to a target that is inherently disliked. Hedge funds and wall street more generally. 3) Cause world wide market volatility. In this case, it's moving institutional investors out of the market, eventually causing a lack of liquidity that reveals structural problems. In other words, How many Lehman Brothers does it take to cause a 2008 type crash?
- bhawks 6y ago
  You lost me at 3 - how can having hidden structural problems be a desirable position to be in? Hedge funds entered a crowded trade that has unlimited downside without an exit strategy. They are not naive and although they're obviously upset I doubt they're shocked about what happened. They went in with confidence thinking they knew the 'market' (aka other hedge funds) and discounted the possibility of a short squeeze. This type of risk taking behavior must have the associated consequences, otherwise there is no reason to stop behaving this way at larger and larger scales. Moral hazard - again a finance / trading 101 concept - just like shorting can result in infinite loss.
  - Threeve303 6y ago
    Investors have been known to want increased volatility because playing it right increases profit. If you can target that volatility to specific industries or companies, all the better. If a foreign adversary was using bots or social media manipulation to drive up this behavior, perhaps they could target the right companies in the market to reveal structural weakness. Similar to how the 2016 election interference happened. Though that is getting much more on the conspiratorial side.
- hippich 6y ago
  Re "spreading misinformation" - not sure which pieces you are specifically talking about. In case of r/WSB I doubt anyone has any illusions what it is about. It is done either for lulz or as a form of protest/activism. In a way - it is form of speech.
JumpCrisscross 6y ago
How are the futures hedged if shorting is not allowed? Does that mean every futures seller is effectively unhedged?
pgAdmin4 6y ago
I am naive here, can someone explain what is the economic utility of a stock market ? For example, its easy to understand utility of food, cloths, car, house, money. But I am not able to find a reason about stock market existence for day-to-day trading, where secondary stocks are traded daily after IPO. It seems none of the day-to-day trading money/profit ever goes back to business to help them to improve that business.
- cardiffspaceman 6y ago
  The utility comes from the utility of having the chance to sell your IPO shares on the day and date of your choosing. That liquidity makes the shares more valuable to the buyer, who might find herself in a "oops I have to sell now" situation.
- creamyhorror 6y ago
  I thought about this long ago. The answer is that the casino-like activity of the secondary market provides a great incentive to companies to primary-list. This engine drives business formation through the valuations it can provide to companies. And companies can issue more shares to raise more capital from the very liquid casino. So it's helpful in that way.

225 points by chedine 6y ago

Trex_Egg 6y ago

Nooooooooooooooo!!!!!!!!!!!!!!!!!

Marciplan 6y ago

How does this article with 1 comment as of this writing land at #1 on HN?

the-dude 6y ago
By acquiring 33 votes in 33 minutes. And shorting is kinda hot right now.
ignoramous 6y ago
The article itself is well-written (contrasting the Indian stock markets and how it benefits from being younger than their US counterpart which is beholden to incumbents lobbying for the status-quo and a century old legacy system with enough loopholes than SEC can plug). It could be that no one really has strong opinions one way or the other to what's being said (expected since Nithin Kamath, who wrote the article, is level-headed and pragmatic, as usual) to comment.
detaro 6y ago
Not having comments is irrelevant for the ranking.

blueblisters 6y ago

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-can-indian-brokerage-industry-survive 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 subsidized by retail traders?

kgwgk 6y ago
> how do market makers get incentivized to provide liquidity in such situations? Buy low, sell high. PS: By the way, I'm not sure I understand the question. Market makers are the ones who pay for the order flow.
- smabie 6y ago
  maker rebates also are a pretty significant incentive
seanhunter 6y ago
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.
- twic 6y ago
  To expand on this a little for anyone interested, the problem with classical market-making is that you only make money as long as the trades are crossing back and forth around a stationary price. If the market moves suddenly, you end up losing money. In your example, if a huge sell comes in at 10, and the market then moves down to 8 bid, 9 offered, the market maker has a position they bought at 10, but can only sell at 9 at best. So, profitability depends on the ratio of the nice "random crossing" to the nasty "toxic flow". The toxic flow tends to come from large, well-informed market participants who can act very quickly. That means institutional players with colocated trading machines and so on. There are none of those on retail brokerages, so retail flow has a great ratio of random crossing to toxic flow, and so market makers are happy to pay for it. Meanwhile, the exchange itself is crowded with players like that, and there's a worse ratio, so market makers are a lot more wary. This is why market makers invest a lot in low-latency trading. If you can find out about an impending market move, and cancel your resting orders before other participants cross into you, you can dodge the toxic flow, and have a better chance of making money. Longer explanation: https://insights.deribit.com/market-research/toxic-flow-its-sources-and-counter-strategies/ https://insights.deribit.com/market-research/toxic-flow-its-... Unrelatedly, another source of revenue for market makers is maker-taker pricing, where the person crossing the market pays a little fee to the person who rested the order they crossed into: https://www.investopedia.com/articles/active-trading/042414/what-makertaker-fees-mean-you.asp https://www.investopedia.com/articles/active-trading/042414/... But i'm not sure how common this is these days.

bhaavan 6y ago

A lot of movement in GME was driven by call options, which is generally available in all markets. However, absence of overnight short positions would definitely diminish the trigger GME needed to get short squeezed and become volatile in the first place.

RobertoG 6y ago

>>"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?

mmmateo 6y ago
When you lend someone a stock you borrowed, it’s considered an additional ‘stock shorted’
- nico_h 6y ago
  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.
  - deleted 6y ago
    [deleted]
  - imtringued 6y ago
    >Also, there is a difference between 100% of the stock and 100% of the float. With GME both of these are abnormally high. Either of them is enough to explain the short squeeze.
- hutzlibu 6y ago
  How is it called, when the person you lend your stock to, lend it to someone else, who lends it again to you and you lend it to the first person again? Madness? (Anyway, my actual knowledge of the stock market is limited, but is my scenario a realistic one?)
- thargor 6y ago
  No. Shorting is selling a stock you borrowed. Multiple borrows does not make a short.

ignoramous 6y ago

> 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-avoids-bankruptcy/ https://movieweb.com/amc-theatres-raises-one-billion-dollars...

WJW 6y ago
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.
- PeterisP 6y ago
  "There is no way everyone can get out at the top" - this is the big issue here - as far as I understand, the position of WallStreetBets is that there are (were?) so many shorts of GME compared to the shares on market that they would be required to buy all that stock and everyone can get out at the top. I don't feel certain about this (especially since if any of the funds actually go bankrupt, they would default on their obligations, not actually buy the shorted stock at all and just owe some not-fully-collectable money), but that seems to be the whole reason for this situation.

MrPatan 6y ago

The SEC should protect the hedge funds by preventing them from short selling

mensetmanusman 6y ago

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.

mschuster91 6y ago
> 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.
- kgwgk 6y ago
  Short selling is older than the SEC.
  - cardiffspaceman 6y ago
    True. All this stuff was old-hat when the Tulip Mania "ended" in the 17th Century. There is even a tale about olive presses that reads a little like a futures contract's lifetime [1]. [1] https://www.thestreet.com/opinion/a-brief-history-of-stock-options-10595277 https://www.thestreet.com/opinion/a-brief-history-of-stock-o...
- pbronez 6y ago
  Maybe? I think it’s really useful to give people an economic incentive to do socially useful things, like pointing out when a company is in an unsustainable position before it literally starts locking out workers. Journalists are better spent digging into political situations that aren’t directly tradable. Even if you think journalists should do the research and make results public instead of funds doing the research and keeping it private (until they reveal their conclusions through trading), I think you want shorting available as a RESPONSE to the reporting. Why would the companies change their behavior in response to negative press if they aren’t subjected to economic pain for ignoring it?

deleted 6y ago

[deleted]

deleted 6y ago

[deleted]

premiumpocket 6y ago

What reddit guys are doing should be called MEMEntum & not momentum

CTDOCodebases 6y ago

In reference to the GME/WSB fiasco the issue isn't so much the shorting itself but the large number of “fails-to-deliver”. This was happening since early December. It looked suspicious and was reported to the SEC. Read comments for receipts. https://www.reddit.com/r/wallstreetbets/comments/kr98ym/gme_gang_we_need_to_complain_about_naked_short/?utm_source=share&utm_medium=ios_app&utm_name=iossmf https://www.reddit.com/r/wallstreetbets/comments/kr98ym/gme_...

ZephyrBlu 6y ago
Which I believe is due to them having shorted over 100% of the float making it impossible for the shares which were shorted to be purchased.
- wrkronmiller 6y ago
  > There are 100 shares. A owns 90 of them, B owns 10. A lends her 90 shares to C, who shorts them all to D. Now A owns 90 shares, B owns 10 and D owns 90—there are 100 shares outstanding, but190 shares show up on ownership lists. (The accounts balance because C owes 90 shares to A, giving C, in a sense, negative 90 shares.) Short interest is 90 shares out of 100 outstanding. Now D lends her 90 shares to E, who shorts them all to F. Now A owns 90, B 10, D 90 and F 90, for a total of 280 shares. Short interest is 180 shares out of 100 outstanding. No problem! No big deal! You can just keep re-borrowing the shares. F can lend them to G! It's fine. https://www.bloomberg.com/opinion/articles/2021-01-25/the-game-never-stops?sref=1kJVNqnU#footnote-3 https://www.bloomberg.com/opinion/articles/2021-01-25/the-ga...
  - pbronez 6y ago
    “It’s fine” This situation sounds like a hideous volatile time bomb of complex exponential effects.
    - vsareto 6y ago
      That's a bit overblown. Dog piling into a single stock is one thing. An entire market (that was) primed to collapse (housing) is another.

Threeve303 6y ago

This is a financial version of the social media effect we have seen spreading misinformation and causing people to act in real life. All of the ingredients are there. 1) Use social media to organize motivated groups of people 2) Align the mob to a target that is inherently disliked. Hedge funds and wall street more generally. 3) Cause world wide market volatility. In this case, it's moving institutional investors out of the market, eventually causing a lack of liquidity that reveals structural problems. In other words, How many Lehman Brothers does it take to cause a 2008 type crash?

bhawks 6y ago
You lost me at 3 - how can having hidden structural problems be a desirable position to be in? Hedge funds entered a crowded trade that has unlimited downside without an exit strategy. They are not naive and although they're obviously upset I doubt they're shocked about what happened. They went in with confidence thinking they knew the 'market' (aka other hedge funds) and discounted the possibility of a short squeeze. This type of risk taking behavior must have the associated consequences, otherwise there is no reason to stop behaving this way at larger and larger scales. Moral hazard - again a finance / trading 101 concept - just like shorting can result in infinite loss.
- Threeve303 6y ago
  Investors have been known to want increased volatility because playing it right increases profit. If you can target that volatility to specific industries or companies, all the better. If a foreign adversary was using bots or social media manipulation to drive up this behavior, perhaps they could target the right companies in the market to reveal structural weakness. Similar to how the 2016 election interference happened. Though that is getting much more on the conspiratorial side.
hippich 6y ago
Re "spreading misinformation" - not sure which pieces you are specifically talking about. In case of r/WSB I doubt anyone has any illusions what it is about. It is done either for lulz or as a form of protest/activism. In a way - it is form of speech.

JumpCrisscross 6y ago

How are the futures hedged if shorting is not allowed? Does that mean every futures seller is effectively unhedged?

pgAdmin4 6y ago

I am naive here, can someone explain what is the economic utility of a stock market ? For example, its easy to understand utility of food, cloths, car, house, money. But I am not able to find a reason about stock market existence for day-to-day trading, where secondary stocks are traded daily after IPO. It seems none of the day-to-day trading money/profit ever goes back to business to help them to improve that business.

cardiffspaceman 6y ago
The utility comes from the utility of having the chance to sell your IPO shares on the day and date of your choosing. That liquidity makes the shares more valuable to the buyer, who might find herself in a "oops I have to sell now" situation.
creamyhorror 6y ago
I thought about this long ago. The answer is that the casino-like activity of the secondary market provides a great incentive to companies to primary-list. This engine drives business formation through the valuations it can provide to companies. And companies can issue more shares to raise more capital from the very liquid casino. So it's helpful in that way.