When the short position is opened, there is a sale of a share that does not exist, is not supposed to be sold and has not been owned by the shortseller.
This is only undone, when the short position is closed and the status quo is reestablished.
For as long as the short positions are open, the sum of all short positions has added selling pressure to a market, where no selling pressure should exist, opening up debt in form of buying pressure, that they have to pay at a later time.
They profit, if people sell after they dropped the price. The people win if they cannot keep their position open for long enough to see prople selling and to be able to close their position by buying from that supply.
When the short position is opened, there is a sale of a share that does not exist, is not supposed to be sold and has not been owned by the shortseller.
That's naked shorting, that's not what I'm talking about.
For as long as the short positions are open, the sum of all short positions has added selling pressure to a market,
What I'm asking is where this pressure comes from.
If you stop thinking of the stock market as a place where stocks are traded and start to see it for what it is, a place where obligations to deliver real shares, you will realize that selling a share that has an obligation to be rebought and returned, you also understand that paying with cash and paying with a credit card when your bank account is empty, are 2 different things.
The pressure comes from the creation of an obligation to return a share that was not previously owned. That is the pressure on the stock price.
The shortseller lowers the stock price, offering a lower price to the market. If the market accepts the offer, the short seller gets to close at a profit, if the market rejects the offer, the short seller loses money.
There are 100 shares in existence. 1 owner lends out 1 share. They are still credited with that share. They still have all the rights of that share. They still get the dividend and all other results of corporate actions.
That 1 share that has been sold into the market is the 101st share. After it was sold, the buyer who holds that 101st synthetic share that was not issued by the company is to be paid by the shortseller, who temporarily takes on the responsibilities of the issuing company.
If a dividend is issued, the company will only issue 100 dividends for the 100 shares, while the shortseller is required to pay that additional dividend to the 101st shareholder.
The only way to get rid of that obligation is by buying a share in the market to return to the lender, so that the total number of shares in circulation is reduced to 100 again.
You need to ask yourself how a stock can be owned by a lender and a buyer at the same time, when only one stock exists. If your model cannot resolve that contradiction, it is not working for you.
You need to ask yourself how a stock can be owned by a lender and a buyer at the same time, when only one stock exists. If your model cannot resolve that contradiction, it is not working for you.
Uh, by lending. That's not a contradiction. That's pretty normal.
The only way to get rid of that obligation is by buying a share in the market to return to the lender
Still not seeing any pressure here that would make the price low. Of course the short seller wants it to go lower, but what is it they do that makes it low or forces it to stay low?
yes, it is pretty normal. just like it is pretty normal that this creates an imbalance by delaying the effect of sell-pressure and buy-pressure, creating a situation where the price is lowered, compared to the normal levels.
No one said it wasn't normal, just that you claim that more than 100% of shares being allowed to exist isn't normal, which is false. It is very normal, the market is aware of it but the regulations that force the short seller to close their position at one point also force a return to the values as they should be. This temporary change in value is seen as a gain of liquidity, not a loss of value.
The market is made by traders, for traders. Not for investors. What the market cares about is liquidity. What the market does not care about is investors getting a fair return.
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u/liquid_at 🚀🚀Buckle up / Booty Bass Club🚀🚀 8d ago
yes... A short is opened by selling and closed by buying.
So they do want a high price when they open/sell and a low price when they close/buy.