Template:AI Short sale: Difference between revisions
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A [[short sale]] is a securities transaction in which an investor sells a [[security]] that it does not own, intending to buying it back later at a lower price. | A [[short sale]] is a securities transaction in which an investor sells a [[security]] that it does not own, intending to buying it back later at a lower price. | ||
In a short sale, the investor “[[stock lending|borrows]]” the security from a [[broker]] and then sells it on the market. If the price of the security falls as expected, the investor can buy it back at the lower price, return it to the lender, and pocket the difference as profit. But if the investor is a poor defenceless hedge fund titan and some greasy [[day traders on Reddit]] gang up on him, deliberately buying the the security just to piss on his chips and make it go higher, the poor little master of the universe will get his arse handeed to him and will spend the next three years writing investor letters explaining how he managed to lose seven billion dollars and torpedo his whole fund with a sure-fire bet against a lagging performer in an anyway dying industry. This is just not fair and there is absolutely no call for any kind of schadenfreude here. | In a short sale, the investor “[[stock lending|borrows]]” the security from a [[broker]] and then sells it on the market. If the price of the security falls as expected, the investor can buy it back at the lower price, return it to the lender, and pocket the difference as profit. But if the investor is a poor defenceless hedge fund titan and some greasy [[day-traders on Reddit]] gang up on him, deliberately buying the the security just to piss on his chips and make it go higher, the poor little master of the universe will get his arse handeed to him and will spend the next three years writing investor letters explaining how he managed to lose seven billion dollars and torpedo his whole fund with a sure-fire bet against a lagging performer in an anyway dying industry. This is just not fair and there is absolutely no call for any kind of schadenfreude here. | ||
Short selling can be a risky investment strategy, as the potential losses are theoretically unlimited, especially if you trade at the [[bottom of the range]], because there is no upper limit to how high the price of a security can rise. | Short selling can be a risky investment strategy, as the potential losses are theoretically unlimited, especially if you trade at the [[bottom of the range]], because there is no upper limit to how high the price of a security can rise. | ||
As a result, short selling is generally only suitable for experienced investors who understand the risks and have the financial resources to absorb potential losses. This turned out not to include the portfolio managers at [[Melvin Capital Management LP]]. | As a result, short selling is generally only suitable for experienced investors who understand the risks and have the financial resources to absorb potential losses. This turned out not to include the portfolio managers at [[Melvin Capital Management LP]]. | ||
Latest revision as of 18:15, 23 December 2022
A short sale is a securities transaction in which an investor sells a security that it does not own, intending to buying it back later at a lower price.
In a short sale, the investor “borrows” the security from a broker and then sells it on the market. If the price of the security falls as expected, the investor can buy it back at the lower price, return it to the lender, and pocket the difference as profit. But if the investor is a poor defenceless hedge fund titan and some greasy day-traders on Reddit gang up on him, deliberately buying the the security just to piss on his chips and make it go higher, the poor little master of the universe will get his arse handeed to him and will spend the next three years writing investor letters explaining how he managed to lose seven billion dollars and torpedo his whole fund with a sure-fire bet against a lagging performer in an anyway dying industry. This is just not fair and there is absolutely no call for any kind of schadenfreude here.
Short selling can be a risky investment strategy, as the potential losses are theoretically unlimited, especially if you trade at the bottom of the range, because there is no upper limit to how high the price of a security can rise.
As a result, short selling is generally only suitable for experienced investors who understand the risks and have the financial resources to absorb potential losses. This turned out not to include the portfolio managers at Melvin Capital Management LP.