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Short selling. Shares are "borrowed" for a fee and flood into the market. Voila, buyers now have to buy a bunch of new shares that shouldn't exist just to keep

Short selling. Shares are "borrowed" for a fee and flood into the market. Voila, buyers now have to buy a bunch of new shares that shouldn't exist just to keep the price level. Unethical hedge funds have made a living essentially tanking companies by borrowing loads of stock, selling at a high price and flooding the market with far more shares than should exist, tanking the stock price making the company having far more problems raising money (and killing off some of them). The borrowed shares are returned when the price tanks at a much cheaper price. This is bad for the world when it's just some weaker retail outlet being dumped, but devastating if it's some biotech firm researching medical cures being hamstrung. Now, there's supposedly some regulations and disclosures for this like the Short Interest stat that are usually published I think twice a month. But this is time delayed and manipulatable. Here's an interesting anecdote about this in an OTC market: https://www.reddit.com/r/Superstonk/comments/rsaevv/in_march_of_2005_this_guy_bought_100_of_shares/?utm_source=share&utm_medium=ios_app&utm_name=iossmf https://www.reddit.com/r/Superstonk/comments/rsaevv/in_march... > In March of 2005 this guy bought 100% of shares (1.1M shares) in a traded company to prove the corruption. The next two days that same stock traded 50 million times and dropping the price 99% in two hours. All this with LITERALLY NO SHARES AVAILABLE TO BORROW OR SHORT.

Closi 4y ago
Short selling doesn't create new stocks, so as per the parent comment, what do you mean you can't tell how many shares of a company are issued? It feels like you have just changed the question from your original claim that "You can't even find out a definitive answer as to how many shares of a stock currently exist" - when the answer is easy, go to any website and divide market cap by share price. Want to find out what is shorted? Go on any website that has a stock quotes service or find the short interest ratio, which is declared at least twice a month for American assets. On the other hand, how would you see how many short positions exist for BTC considering that it is traded across multiple exchanges?
- logicalmonster 4y ago
  > Short selling doesn't create new stocks, Short selling never creates new legal shares with voting rights: but they do exist in the marketplace until that position is closed. This means that this artificial share affects the price per share, does it not? > the answer is easy, go to any website and divide market cap by share price. This is a chicken and egg calculation. How is market cap computed? Market cap is computed by taking shares x price per share. But if you have an unknown number of borrowed shares in the market, then this entire calculation is unreliable. The only reliable number that exists in stock trading is the current price per share. > declared at least twice a month for American assets. It seems like you see twice a month as a good thing. I think it's a bad number that can be easily manipulated. > On the other hand, how would you see how many short positions exist for BTC considering that it is traded across multiple exchanges? Absolutely perfect information about all of reality would probably never exist, but you have a blockchain you can look at in real time, you have exchanges that publish wallet addresses and other information that can be monitored to see reserves, inflows, and outflows. IMO, there's a bit of some kinds of disclosure possible with crypto that cannot exist with stocks.
  - Closi 4y ago
    > But if you have an unknown number of borrowed shares in the market, then this entire calculation is unreliable. You have perfect knowledge of the number of actual issued shares, plus a 2 weekly disclosure on the number of borrowed shares. > Absolutely perfect information about all of reality would probably never exist, but you have a blockchain you can look at in real time How does the BTC blockchain, as an example, show short positions? (Hint: it doesn't, it requires disclosure by centralised exchanges in exactly the same way, except these disclosures are entirely unregulated and spread across many exchanges). Sounds like this is a criticism of stock exchanges that is again worse in the cryptocurrency/blockchain magic world.
rspeele 4y ago
Can you explain this part to me? How does selling a ton of shares into the market move the price down, but buying an equal number of shares back to complete your short doesn't move it back up? Is this not a double-edged sword? If you dump enough shares that you actually affect the market price, you'll have to do the same thing on the way back.
- logicalmonster 4y ago
  This is an actual good question which I'd offer a few answers for, and I'm sure there's other partial explanations as well. 1) In an ideal world, the tactic tanks the price enough that investors don't support the company, they have trouble raising capital, and go out of business and the borrowed share (I believe) either never has to be repaid or is trivial to recover. 2) When you're dealing with really big money and want to enter or exit a position without affecting the price too much, you don't just go to your stock broker and enter a buy or sell order for however many shares you're dealing with. You use experienced people and automated algorithms to time the deals to have as minimum an impact on the price as possible and enter/exit smartly. 3) Dark pools exist for making orders that don't impact the public price. https://www.investopedia.com/terms/d/dark-pool.asp https://www.investopedia.com/terms/d/dark-pool.asp
  - rspeele 4y ago
    If I can use methods like 2 or 3 to make huge orders without moving the market, why bother shorting? Couldn't I use this to make easy profits on longs? Say "X" is the method to place orders that don't affect the price. 1. Buy 5 million shares via X, at the current low price 2. Buy 5 million more shares via my stock broker, pumping the public price 3. Sell all 10 million shares via X, all at the new high price My guess would be that the organizations you deal with through these dark pools or whatever discount your trades based on the perceived advantage you're getting by not making them public. If the public price is $100, and you want to sell a jillion shares through a dark pool, nobody is going to offer you better than, say, $98 per share or whatever their quants have calculated as a fair price for a sell that big. Likewise if you wanted to buy a jillion they'd ask for $102 or so. There can't be a free lunch here.
salawat 4y ago
....Short selling doesn't create new shares. You're borrowing some from someone who owns them already for a price point which you then sell in the expectation the share price will drop, meaning you can buy back the shares you borrowed cheaper, pocketing the difference. Unless you're talking 'naked shorting'. Which is illegal. Though I'm not sure to whose overall benefit. https://www.investopedia.com/terms/n/nakedshorting.asp https://www.investopedia.com/terms/n/nakedshorting.asp I make no judgement on it's relative virtue. From an information theoretic point of view, if you audit the holdership of all outstanding isuued shares you will see more orders of involved shares than there are actual sellers that can complete the transaction. These other orders are tracked as FTD's, but may constitute a negative sentiment signal to other actors in the market. Realistically speaking though, it's basically a Stock Market version of a smear/negative advertisement/marketing campaign. Someone burned money to create the appearance of a lack of confidence in a security. The fact it's illegal is arguably a free speech violation. Whether you act on the naked shorting's distortive info is entirely up to you.

Closi 4y ago

Short selling doesn't create new stocks, so as per the parent comment, what do you mean you can't tell how many shares of a company are issued? It feels like you have just changed the question from your original claim that "You can't even find out a definitive answer as to how many shares of a stock currently exist" - when the answer is easy, go to any website and divide market cap by share price. Want to find out what is shorted? Go on any website that has a stock quotes service or find the short interest ratio, which is declared at least twice a month for American assets. On the other hand, how would you see how many short positions exist for BTC considering that it is traded across multiple exchanges?

logicalmonster 4y ago
> Short selling doesn't create new stocks, Short selling never creates new legal shares with voting rights: but they do exist in the marketplace until that position is closed. This means that this artificial share affects the price per share, does it not? > the answer is easy, go to any website and divide market cap by share price. This is a chicken and egg calculation. How is market cap computed? Market cap is computed by taking shares x price per share. But if you have an unknown number of borrowed shares in the market, then this entire calculation is unreliable. The only reliable number that exists in stock trading is the current price per share. > declared at least twice a month for American assets. It seems like you see twice a month as a good thing. I think it's a bad number that can be easily manipulated. > On the other hand, how would you see how many short positions exist for BTC considering that it is traded across multiple exchanges? Absolutely perfect information about all of reality would probably never exist, but you have a blockchain you can look at in real time, you have exchanges that publish wallet addresses and other information that can be monitored to see reserves, inflows, and outflows. IMO, there's a bit of some kinds of disclosure possible with crypto that cannot exist with stocks.
- Closi 4y ago
  > But if you have an unknown number of borrowed shares in the market, then this entire calculation is unreliable. You have perfect knowledge of the number of actual issued shares, plus a 2 weekly disclosure on the number of borrowed shares. > Absolutely perfect information about all of reality would probably never exist, but you have a blockchain you can look at in real time How does the BTC blockchain, as an example, show short positions? (Hint: it doesn't, it requires disclosure by centralised exchanges in exactly the same way, except these disclosures are entirely unregulated and spread across many exchanges). Sounds like this is a criticism of stock exchanges that is again worse in the cryptocurrency/blockchain magic world.

rspeele 4y ago

Can you explain this part to me? How does selling a ton of shares into the market move the price down, but buying an equal number of shares back to complete your short doesn't move it back up? Is this not a double-edged sword? If you dump enough shares that you actually affect the market price, you'll have to do the same thing on the way back.

logicalmonster 4y ago
This is an actual good question which I'd offer a few answers for, and I'm sure there's other partial explanations as well. 1) In an ideal world, the tactic tanks the price enough that investors don't support the company, they have trouble raising capital, and go out of business and the borrowed share (I believe) either never has to be repaid or is trivial to recover. 2) When you're dealing with really big money and want to enter or exit a position without affecting the price too much, you don't just go to your stock broker and enter a buy or sell order for however many shares you're dealing with. You use experienced people and automated algorithms to time the deals to have as minimum an impact on the price as possible and enter/exit smartly. 3) Dark pools exist for making orders that don't impact the public price. https://www.investopedia.com/terms/d/dark-pool.asp https://www.investopedia.com/terms/d/dark-pool.asp
- rspeele 4y ago
  If I can use methods like 2 or 3 to make huge orders without moving the market, why bother shorting? Couldn't I use this to make easy profits on longs? Say "X" is the method to place orders that don't affect the price. 1. Buy 5 million shares via X, at the current low price 2. Buy 5 million more shares via my stock broker, pumping the public price 3. Sell all 10 million shares via X, all at the new high price My guess would be that the organizations you deal with through these dark pools or whatever discount your trades based on the perceived advantage you're getting by not making them public. If the public price is $100, and you want to sell a jillion shares through a dark pool, nobody is going to offer you better than, say, $98 per share or whatever their quants have calculated as a fair price for a sell that big. Likewise if you wanted to buy a jillion they'd ask for $102 or so. There can't be a free lunch here.

salawat 4y ago

....Short selling doesn't create new shares. You're borrowing some from someone who owns them already for a price point which you then sell in the expectation the share price will drop, meaning you can buy back the shares you borrowed cheaper, pocketing the difference. Unless you're talking 'naked shorting'. Which is illegal. Though I'm not sure to whose overall benefit. https://www.investopedia.com/terms/n/nakedshorting.asp https://www.investopedia.com/terms/n/nakedshorting.asp I make no judgement on it's relative virtue. From an information theoretic point of view, if you audit the holdership of all outstanding isuued shares you will see more orders of involved shares than there are actual sellers that can complete the transaction. These other orders are tracked as FTD's, but may constitute a negative sentiment signal to other actors in the market. Realistically speaking though, it's basically a Stock Market version of a smear/negative advertisement/marketing campaign. Someone burned money to create the appearance of a lack of confidence in a security. The fact it's illegal is arguably a free speech violation. Whether you act on the naked shorting's distortive info is entirely up to you.