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Short sale: Difference between revisions
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Short selling is risky for you — your losses can be conceptually infinite — and for the issuers of the securities you short sell, especially if they happen to be financial institutions. Therefore this activity is regulated in many jurisdictions, including the {{t|EU}} in their wonderfully entexted [[EU Short Selling Regulations]]. | Short selling is risky for you — your losses can be conceptually infinite — and for the issuers of the securities you short sell, especially if they happen to be financial institutions. Therefore this activity is regulated in many jurisdictions, including the {{t|EU}} in their wonderfully entexted [[EU Short Selling Regulations]]. | ||
===It is risky for the prime broker too=== | |||
Spare a thought for your much-maligned prime broker. On an ordinary margin loan the prime brokers maximum loss is capped at the value of the the loan: you can only lose what you have given away. This is not so with a stock loan: here the borrower theoretically unlimited exposure to the upside means the prime broker has unlimited second-loss exposure too. That is to say, once it's client is wiped out, the prime broker wears the remainder of the loss. | |||
The unexpected emergence of the [[GameStop]] [[horcrux]] in early 2021 has undoubtedly provoked pause thought amongst prime brokerage risk managers across the city, especially as regards their margin lock-up arrangements with funds who who like to hang out in [[crowded short]]s. | |||
===Other ways of going short=== | ===Other ways of going short=== | ||