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You can think of shorting as betting that the stock will go down. For example, Alice can write on a piece of paper: "Anytime anyone wants to sell this paper bac
by cousin_it 6y ago
You can think of shorting as betting that the stock will go down. For example, Alice can write on a piece of paper: "Anytime anyone wants to sell this paper back to me, I'll pay a sum equal to the price of GME at that moment". Now if Alice sells the paper to Bob, Alice is short and Bob is long, even though none of them touched any stock.
Of course if many Alices do that, that will push down the price of GME, because it's market-relevant information that many people think GME will go down.
The real problem is counterparty risk. What happens if Alice runs out of money and can't pay up, or there's a run on all Alices at once? So a system of guarantors is needed. But this is far from the simple argument that "selling a borrowed car is stealing".
- varispeed 6y agoWhat this example has anything to do with selling something you don't own? It's like a thief would explain why he "borrowed" a car and then sold it and will promise it will get it back to the owner. Apparently stockmarket has an exemption for this behaviour, maybe they pay big sums to law enforcement to turn the blind eye.
- cousin_it 6y agoThe rules of the stock market say reselling borrowed securities is ok though, and both borrowers and lenders agree to these rules when entering into deals. I'm not sure why anyone needs to turn a blind eye.
- varispeed 6y agoBut the rules of stock market is not law. If this was legal then you could do any sort of money laundering, so why authorities turn the blind eye to this?
- deleted 6y ago[deleted]