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Short-covering and bidding interest pushed the Dow over 400 points intraday in stock trading on Friday and London’s FTSE 100 closed up by more than 8%. As much as many people are elated at SEC’s ban on short selling, there are also many traders fuming at this illogical and unreasonable decision, including myself. After all, money can be made both ways, when an asset goes up and when an asset goes down. Why make short sellers out to be ruthless and manipulative when many of them also do their homework before deciding to short a stock? Say bye to free markets. We can also say bye bye to liquidity in the markets too.
Why is this so? Because short selling is a necessary part of any free market. It is the ability for a security to be pushed down in price when short-sellers realize it has lower value than what the market has priced it at. Banning short selling of these companies will artificially inflate their prices as no one will be allowed to short them if they think the stock is not worth its price. Sure, short-selling has been abused, but that abuse seems to pale in comparison to the artificial market pumping that is going on now and the rescuing of certain companies thus guaranteeing their bonds and benefiting a select group in Wall Street. Besides, many of these companies of which short-selling is now banned on their stock have been the worst market abusers in everything from overleveraged subprime, naked shortselling, commodities pumping etc.
Pimco CEO El-Erian said that the recent government rescue will have a significant impact on markets, but he thinks that these efforts may be too late to fix the damaging impact on the economy and financial system. However, will it turn out to be a wrong move in time to come?
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Welcome to the United Soviet Sates of America. And just as with the communism of old in the USSR it only benefits the upper class and friends of the Politurbo
Whatever the system, just ride the trend to make money.
The market will still be there, no matter how manipulative.
Grace Rocks!!!!
Am newbie investor and am wandering what exactly is short selling?
Is this trading the eminis and “betting” that the index will fall?
Many thanks :)
Short Selling is borrowing a stock and then selling it with the expectation the stock will go down further in price so you can buy it back and return it at a profit. For example, if you short sell a stock at $45 you are borrowing that stock when it is worth $45 to sell it at that price. If the stock goes down to $35 and you buy it back to close your position, then you return it and make a $10 profit. It’s pretty much the opposite of buying long.
Yes , and you have to pay margin interest while you hold the stock (borrowing).