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shorting stocks, who loses?
- Thread starter z32000
- Start date
Quote from ronblack:
There is no such a thing as win-win in trading (non-zero sum). The owner of the shares loses if the short-seller wins by the same amount (minus expenses). If the short-seller loses, the owner of the shares wins.
This is trivial. Short selling is a zero-sum game and this game is played by he long holder and the short seller. No way for a win-win.
Ron
The important thing is that individuals are acting out their free-will: the individual who is long the stock and does not want to sell cannot say he lost out; he always has the option to sell at anytime. The one that shorts is simply acting out his conviction as well; it may work or it may not work; the owner of the shares does not care as long as he can sell his stock when he wants.
Same thing with borrowing money in the bank. You may open you savings account of CD and pile in you money at 3% per annum. The same money is being lent out to someone who is doing business with it and making a lot more. At the end of the day he repays what he borrowed: you do not have to know or consent for him to borrow your money as long as you can have your money whenever you want. In this case though, the bank collects the difference in interest rates (deposits vs. loans), while for the brokerage, the short-seller may actually collect a little interest on the money from shorting until he covers the position: the broker is only entitled to normal trade commissions.
Quote from zdreg:
there is usually no fee for most short sales unless the stock is hard to borrow but not impossible to borrow. these fees are usually charged to hedge funds . if it is hard to borrow the brokerage firm in most cases will not allow the short sale for the small investor.
Just FYI, my prop trading firm lets me electronically locate any stock that's hard but not impossible to borrow, and charges me between $.005/share to $.09/share (that's an extreme case - TNH is 9 cents/share to borrow, but a stock like IMB runs me 2 cents/share).
Quote from ronblack:
There is no such a thing as win-win in trading (non-zero sum). The owner of the shares loses if the short-seller wins by the same amount (minus expenses). If the short-seller loses, the owner of the shares wins.
This is trivial. Short selling is a zero-sum game and this game is played by he long holder and the short seller. No way for a win-win.
Ron
I'll add the following:
The owner is an institution read MM. The clearing houses borrow from them. Therefore it is a lose-lose situation for the short seller. You can rest assured that the price will not drop below the price paid by the short seller. I've mentioned this before and I'll outline it here again: Short any security and hold it for a few days. I guarantee that regardless of external market conditions or news related to the stock, the price will not go down below the price paid by the short seller. I know that a lot of people will throw flames at me but I don't care. All I am saying is just try this exercise and come to your senses. If I can help at least one person out there, then I will have accomplished something.
P.S. There is a slim possibility that you might breakeven or just earn a few pennies per share but nothing more than that. Definitely nothing substantial. Conversely, the possibility of incurring heavy losses is very real if you don't cover.
Quote from akeyla:
I'll add the following:
The owner is an institution read MM. The clearing houses borrow from them. Therefore it is a lose-lose situation for the short seller. You can rest assured that the price will not drop below the price paid by the short seller. I've mentioned this before and I'll outline it here again: Short any security and hold it for a few days. I guarantee that regardless of external market conditions or news related to the stock, the price will not go down below the price paid by the short seller. I know that a lot of people will throw flames at me but I don't care. All I am saying is just try this exercise and come to your senses. If I can help at least one person out there, then I will have accomplished something.
P.S. There is a slim possibility that you might breakeven or just earn a few pennies per share but nothing more than that. Definitely nothing substantial. Conversely, the possibility of incurring heavy losses is very real if you don't cover.
Actually I have made more money shorting than from being long this year. So I don't know what you are talking about. Yes I only hold intra-day or overnight ( 1 day).
Quote from neke:
Actually I have made more money shorting than from being long this year. So I don't know what you are talking about. Yes I only hold intra-day or overnight ( 1 day).
Go back and re-read my post. I said " a few days". Definitely not the same as an intra-day or overnight hold. Do what I said and then come back and start flaming me again.
Quote from neke:
Actually I have made more money shorting than from being long this year. So I don't know what you are talking about. Yes I only hold intra-day or overnight ( 1 day).
I'll also add that the "few days" can turn into months resulting in large losses for the short seller if he stubbornly refuses to cover his short sale.
"Short any security and hold it for a few days. I guarantee that regardless of external market conditions or news related to the stock, the price will not go down below the price paid by the short seller."
You must be kidding. Hypothetical example. Early December, '06:
"Click" short 1,000 shares BZH. Profit to date: $30k. And that's just the first example off the top of my head.
http://stockcharts.com/h-sc/ui?s=BZH&p=D&yr=1&mn=0&dy=0&id=p57625276270
Lol. Where did you ever get the idea that shorting is a lose/lose proposition??
I'll also second what neke said. In the past few weeks, fading gaps and shorting rallies has been very profitable. And now that the indexes have moved below their 50-day moving averages and the new lows have started to outnumber the new highs, the trends favors the short seller.
You must be kidding. Hypothetical example. Early December, '06:
"Click" short 1,000 shares BZH. Profit to date: $30k. And that's just the first example off the top of my head.
http://stockcharts.com/h-sc/ui?s=BZH&p=D&yr=1&mn=0&dy=0&id=p57625276270
Lol. Where did you ever get the idea that shorting is a lose/lose proposition??
I'll also second what neke said. In the past few weeks, fading gaps and shorting rallies has been very profitable. And now that the indexes have moved below their 50-day moving averages and the new lows have started to outnumber the new highs, the trends favors the short seller.
Quote from hbiawos:
"Short any security and hold it for a few days. I guarantee that regardless of external market conditions or news related to the stock, the price will not go down below the price paid by the short seller."
You must be kidding. Hypothetical example. Early December, '06:
"Click" short 1,000 shares BZH. Profit to date: $30k. And that's just the first example off the top of my head.
http://stockcharts.com/h-sc/ui?s=BZH&p=D&yr=1&mn=0&dy=0&id=p57625276270
Lol. Where did you ever get the idea that shorting is a lose/lose proposition??
I'll also second what neke said. In the past few weeks, fading gaps and shorting rallies has been very profitable. And now that the indexes have moved below their 50-day moving averages and the new lows have started to outnumber the new highs, the trends favors the short seller.
Don't give me hypothetical examples. Show me actual trading records. As for what Neke said, my reply to his post is self-explanatory.