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Short selling, a method to profit from others’ losses, has become increasingly controversial in modern financial markets. While some view it as dirty, unethical, and dangerous, others consider it a legitimate way to pursue wealth. The debate over short selling, including calls to ban it for certain industries, such as banks, has sparked discussions about its overall impact on markets.
We must first examine its essence to understand whether short-selling is damaging or beneficial. Short selling involves betting against a stock or asset, anticipating its price to decline. If the price does drop, the short seller profits. This practice has long been debated, especially during periods of market turmoil.
While short selling may seem exploitative, it is essential to consider its role in markets. Critics argue that it can exacerbate market downturns and contribute to volatility. On the other hand, proponents highlight its functions in price discovery, market efficiency, and risk management.
Ultimately, the debate around short selling hinges on whether its negative impacts outweigh its potential benefits. Regulators and market participants continue to grapple with this question, seeking a balanced approach that maintains market integrity while allowing for fair and transparent trading practices.
Timecodes
0:00 Video Overview
2:38 What is Shorting
5:26 How to Short Sell Stocks
7:34 The Downsides of Shorting
11:12 The Benefits of Shorting
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In recent weeks, the practice of short selling in the stock market has come under intense scrutiny. Many investors believe that short selling is exacerbating the current market downturn and are calling for a ban on the practice. But what exactly is short selling, and why are so many people suddenly eager to outlaw it?
At its core, short selling is a way for investors to bet against a stock or company. Essentially, the investor borrows shares of a stock they believe will drop in value, sells them on the market, and then hopes to buy them back at a lower price in order to return them to the lender. If successful, the investor pockets the difference between the buy and sell prices as profit.
Short selling has been a part of the stock market for centuries, and many investors view it as an essential tool for discovering accurate stock prices. Advocates of short selling argue that it helps to provide liquidity to the market, as investors are able to trade stocks more freely and accurately reflect a company’s true value. Additionally, they argue that short sellers often act as watchdogs, looking for overvalued companies or frauds and calling attention to them in the process.
However, detractors of short selling say that it can be used to manipulate the market and harm individual companies. Critics argue that short sellers can create a self-fulfilling prophecy by driving down a stock’s price and causing others to sell as well. They also assert that short selling can be used as a tool to spread rumors or false information about a company in order to drive down its stock price and profit from the decline.
The recent market downturn has brought renewed attention to these arguments, with many investors and politicians calling for more stringent rules around short selling or a complete ban on the practice altogether. Some countries, such as Italy and Spain, have already implemented temporary bans on short selling in order to protect their markets.
Critics of these proposals argue that short selling is a valuable market activity that can help to uncover and correct flaws in the system. They assert that a ban on short selling would limit market efficiency and ultimately harm investors and the economy as a whole.
Ultimately, the debate over short selling is complex and multifaceted, with both benefits and drawbacks to the practice. While it remains to be seen whether any concrete actions will be taken to regulate or outlaw short selling, the current market downturn is sure to continue fueling the conversation and raising important questions about the role of the stock market in our society.
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Great video! Another way I like to think about it is that there is an asymmetry in investment behavior. When taking a long position, people tend to be proactive in finding a good place to invest, but are often passively watching their investments afterwards. So, the market signal that a company does well can be very quick and strong, or too quick ("hype", "pump", "bubble"), but the signal that a company isn't doing so well will be slower or delayed. That makes for stocks that are quick to rise and slow to correct. Short sellers provide the balance of proactively looking for failures, and more passively ignoring successful companies. Ultimately, on the whole, you end up with more honest market prices.
Crony capitalism
maybe i havent thought it thru thoroughly yet, but i dont see any way how short selling could be considered a net negative. if a company's success/net profit/etc is so dependent upon the price of their stock or investments from investors, is it even successful? short selling compels companies to have solid fundamentals so that they arent overly dependent on their stock
Excellent video, thank you
Jamie Dimon doesn't want his business to be shortsold, what a shocker…
What about naked short selling from market makers (MM) like Citadel?
Destroying a bank it's not a good thing. American dollar is already weak enough
I think short selling existing makes sense but private equity short sellers will tank otherwise functional companies just for a short term profit, such as AMC. Yeah maybe their fundamentals were a bit shakey but it was almost exclusively to do with covid and a lot of people were panicking about the future of movie theaters.
A big issue I see is social media responsibility and also just personal responsibility in propagating this type of fear mongering that can overnight cause massive monetary harm overnight based on a rumor or lie. For example there's not a single bank on the planet that can survive a bank run even if it has perfect fundamentals
Your videos rock. Good info clearly explained and well articulated. Hope you're getting out x10 what you're putting in!
Another great video! You take the confusion out of economics and investing. Thank you!
Let's see if I understand this. It's not ok to short sell the banks, but it's fine for the bank's to short silver. I want my cake, and eat it too.
Short selling banks keeps the banks some what honest
Thank you very very much for giving us ammunition for dinner table conversations. Some of my friends and relatives are very much of the Senator Warren mindset, and you've given me the confidence to stand up to some of the things they honestly think are good ideas.
What about naked shorting. You covered nothing
Your iPhone example gets in the way. It's not the same phone, not the same condition.
Shorting wouldn't cause the damage it does if the hedgefunds wouldn't own the news companies.
In Soviet Russia stocks own you.
Any chance you can cut these videos down to say 10min?
This was great information!
The market cycle actually has not met it balance, we continue onward round around and around while hanging tight for that tremendous victory on a colossal >support yet meanwhile we could constantly disregard the market promising and less promising times and remain completely contributed. Enormous thanks to Nagato Kai for assisting me with acquiring over 15btc in about a month and a half by carrying out his technique and following his guide<
George Soro's made 1 billion shorting GBP after the Liz Truss speech and Bank Of England had to intervene to support, short-selling may "look" unethical or have bad consequences, but it's an essential part of any market, if it was "buy only" then you are telling retail investors that the stock market business model will act more like a supermarket instead, in a supermarket, 1 giant corporate entity is making a tonne of money from buyers and buyers can't sell there
Where as stock market is more like a digital version of a flea-markets. Buyers and sellers are interchangeable, wealth is distributed to who ever has the right opinion, in real-time. Brokers also hate short sellers because they cannot charge overnight fees like they can on a long position
This is like YouTube removing the dislike button data, we need to know bad videos from good ones., We need options to stay open and free, whether we like them or not.. Big corporate are a bunch of cowards only concerned about saving their their own, yet if you work for big corporate they treat you like your disposable, just like a short seller might think of them the same way
Damn hypocrisy of it.
Way too much truth in this video!
Basically; ban the PUBLIC from making money. Why buy a stock that is falling in value? That's called a LOSING trade..
Short sellers creates YIN & YANG in the market. We don't know if a stock is just hyped to hike the price or pump and dump and even with due diligence we don't always know. They balance that out.
thank you
borrow > instant debt >> " what the heck can go wrong"..
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19:43 #happyalgorhithmsmothersday
It's very strange if the banks are in such good shape Jamie Dimon should be in favor of short selling by all means, it would be an opportunity of a lifetime to use his own money to buy up such heavily discounted yet thriving banks – unless they are not doing well at all and Jamie Dimon has no intention of putting his own private money into them
SHORT SELLING IS TITLE FRAUD if you are selling someone elses asset without them knowing you borrowed it! A car dealer selling you a car and putting the pink slip in their name is how Nominee accounts work! You think you own the stock, but the title is with the broker, and the broker and the short seller make a profit at your loss.
Why does my YouTube video always always play minimized as of late? Theater mode is no longer saved in between restarting my browser.
Best video on short selling!