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Naked shorting isn’t legal. That’s why you have to borrow the shares..

by namdnay 6y ago

whatever1 6y ago
Gme was literally shorted over 100% last week.
- cortesoft 6y ago
  That doesn’t require naked short selling. A borrows a share from B, sells it to C D borrows the share sold to C, sells it to E. The same share was borrowed twice and sold twice. That has nothing to do with naked shorting.
  - whatever1 6y ago
    One of the two shorts is now naked. There is an obligation of 2 shares and availability of one. If both of the guys demand their share back at the same time, one will not get it. As I was writing it I realized that this is the definition of a Ponzi scheme. Player C thinks that they own a real share, but they own thin air.
    - cortesoft 6y ago
      That isn’t naked short selling. Naked short selling means A skips the borrowing part, and just says “I have a share to sell”, but doesn’t actually have it (nor have they arranged to borrow it). They sell it, planning on buying it before they actually have to deliver it. This is illegal. My example was not naked short selling. At the end of the transactions, only E has a real share. B and C both have an IOU for a share.... they can’t loan it out again or sell it unless they recall the loan (which they can do at any time). If you think this is a Ponzi scheme, just wait until you hear about fractional reserve banking! Every single bank loans out money it doesn’t ‘have’.... it loans out money account holders put in. That means there is more money in circulation than actually exists, because the person whose money was loaned out still has their full balance in their bank account. You can read about stock lending here: https://www.marketwatch.com/story/how-to-shake-loose-change-from-your-brokerage-account-2017-04-19 https://www.marketwatch.com/story/how-to-shake-loose-change-... To your question of “if both people demand their share back they will not get it”.... this is exactly what a short squeeze is. You are right, if the lenders demand their shares back, the short sellers have to scramble to get them back... they have to buy a share on the open market to sell. Now, in normal times a short seller would just borrow a share from someone else to return to the person demanding it back, because normally there is always someone willing to lend their shares (for more and more interest as demand goes up)... of course, if all the shareholders refuse to loan out their share, shorts are screwed... and will have to pay crazy amounts of money to buy back shares that are really expensive. This is what wallstreetbets is trying to do... get all the shares owned by their users who all refuse to loan them out, driving the price ridiculously high.

Naked shorting isn’t legal. That’s why you have to borrow the shares..

whatever1 6y ago

Gme was literally shorted over 100% last week.

cortesoft 6y ago
That doesn’t require naked short selling. A borrows a share from B, sells it to C D borrows the share sold to C, sells it to E. The same share was borrowed twice and sold twice. That has nothing to do with naked shorting.
- whatever1 6y ago
  One of the two shorts is now naked. There is an obligation of 2 shares and availability of one. If both of the guys demand their share back at the same time, one will not get it. As I was writing it I realized that this is the definition of a Ponzi scheme. Player C thinks that they own a real share, but they own thin air.
  - cortesoft 6y ago
    That isn’t naked short selling. Naked short selling means A skips the borrowing part, and just says “I have a share to sell”, but doesn’t actually have it (nor have they arranged to borrow it). They sell it, planning on buying it before they actually have to deliver it. This is illegal. My example was not naked short selling. At the end of the transactions, only E has a real share. B and C both have an IOU for a share.... they can’t loan it out again or sell it unless they recall the loan (which they can do at any time). If you think this is a Ponzi scheme, just wait until you hear about fractional reserve banking! Every single bank loans out money it doesn’t ‘have’.... it loans out money account holders put in. That means there is more money in circulation than actually exists, because the person whose money was loaned out still has their full balance in their bank account. You can read about stock lending here: https://www.marketwatch.com/story/how-to-shake-loose-change-from-your-brokerage-account-2017-04-19 https://www.marketwatch.com/story/how-to-shake-loose-change-... To your question of “if both people demand their share back they will not get it”.... this is exactly what a short squeeze is. You are right, if the lenders demand their shares back, the short sellers have to scramble to get them back... they have to buy a share on the open market to sell. Now, in normal times a short seller would just borrow a share from someone else to return to the person demanding it back, because normally there is always someone willing to lend their shares (for more and more interest as demand goes up)... of course, if all the shareholders refuse to loan out their share, shorts are screwed... and will have to pay crazy amounts of money to buy back shares that are really expensive. This is what wallstreetbets is trying to do... get all the shares owned by their users who all refuse to loan them out, driving the price ridiculously high.