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> Price discovery is broken when large market participants and market makers have access to mechanisms that enable unlimited shorting. Actually, it's the other
by kpommerenke 5y ago
> Price discovery is broken when large market participants and market makers have access to mechanisms that enable unlimited shorting.
Actually, it's the other way round: you can only have accurate price discovery if people can take both long (buy) and short positions (short sell). If shorting is restricted, price discovery is much less likely, since only current owners of the shares can sell them. That's like only allowing current owners of the shares to buy more of them.
- omgwtfbyobbq 5y agoI think it's more that by law, long positions require disclosures, while short positions can be, and mostly are, opaque. The more opaque information discovery is in general, the less accurate markets are in the short term.
- clownbaby 5y agoThe OP you are replying to here is obviously talking about shorting MORE than 100% of the float, which indeed should not be possible.
- bigram 5y agoShorting more than 100% is absolutely possible and the reason it is possible and normal is explained in the SEC report.
- greenshackle2 5y agoYou need to stop getting your information from wsb conspiracy theorists. Here's an example of perfectly possible 200% float short: Acme Corp has exactly 1 share of float, owned by Alice. Bob borrows the share from Alice and sells to Charlie. Diana borrows the share from Charlie and sells it to Eve. Bob and Diana are each short 1 share for a total of 2. Total short position is 200% of float. The better indicator of sketchy activity is FTDs, which may indicate that people are selling short without a locate.