I know that short position use the *sell* option and the goal is the price to fall instead of rise but im not sure how it works , i mean how can this happen , whats the process? how do you make money like this? also when they say at news that speculators will attack a country whose economy is falling do they mean that those speculators will go short on securities of that country's banks? , when a country is doing bad speculators(short) win and investors(long) lose right? but speculators can be long aswell , well not on this scenario , it also seems that investor is strictly someone who take a long position for a looot of time , all of us who study Ta etc and not neccesarily care about long term and long position are called speculators?
How does short position work exactly?
- Thread starter Wach80
- Start date
Well at least in this market (US), you bend over and wait for it LOL
Just a little joke since perma bears are getting killed since 2009.
Just a little joke since perma bears are getting killed since 2009.
For stocks yes, you are borrowing from the broker. For futures, someone is simply taking the other side of the transaction balancing your position.
It's like this. Say you owned a mint restored 1963 corvette. You are convinced the value of it will go higher and I'm convinced the value of it will go lower. Since you're sure it will go up, you're going to keep it. But I make you a deal and offer you $500 to borrow it for a few years and I promise to return to you a corvette exactly like it. Hey, you were going to keep it anyway, so why not take the $500? So you pocket the $500 and I take the Corvette and put it up for sale. I sell it for $50,000. Then the value of Corvettes falls. Later, after a year, since the value of the Corvettes fell, I buy you another Corvette for only $40,000. But I kept the $9,500 profit since I sold the Corvette for $50K, but bought a replacement for only 40K and paid you $500.
In ordinary securities transactions there are two parties involved (if we leave the facilitators, like brokers, out of it): a buyer and a seller. In a legal short sale there are three parties involved. a) The party that sold something they didn't own but borrowed; b) the party from whom they borrowed what was sold (that party is normally not even aware of the short sale), and c) the party who bought whatever it is that was sold short.
In an illegal short sale, which was a popular transaction in the recent past, there are only two parties: a) the party that sells something they don't own and haven't borrowed, and the party that buys the fictitious goods. When this kind of short sale involves securities, it's called a "naked" short sale. Since there is no limit to the number of fictitious shares available for sale, it is a dandy way to drive the price of an illiquid stock to virtually zero, as long as the SEC doesn't mind..
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I've just noticed that someone has correctly pointed out that some legal short-long transactions can be just between two people where the transaction involves the creation of a virtual contract. this can be the case for derivatives like options as well.
In an illegal short sale, which was a popular transaction in the recent past, there are only two parties: a) the party that sells something they don't own and haven't borrowed, and the party that buys the fictitious goods. When this kind of short sale involves securities, it's called a "naked" short sale. Since there is no limit to the number of fictitious shares available for sale, it is a dandy way to drive the price of an illiquid stock to virtually zero, as long as the SEC doesn't mind..
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I've just noticed that someone has correctly pointed out that some legal short-long transactions can be just between two people where the transaction involves the creation of a virtual contract. this can be the case for derivatives like options as well.
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