BF2S Forums Crashes...in context

Im_Dooomed wrote:

Now is the best time for shorting stocks. That basically means you are betting the a stock will go down, so if you borrow 100 shares from the broker, of a stock at 40, and it goes down to 35 you get the 5 share difference, $500 in your pocket.

But if it starts going up, then you lose money, then all the people who bet it will go up make money, and everyone who shorted the stock (Bet it would go down) HAVE to buy it, which usually drives the stock up more and more.

Im_Dooomed wrote:

Lol, no. And besides, it's not like the short selling i do now was the cause of the collapse of the market recently.

Last edited by Scorpion0x17 (2008-10-08 14:59:35)

Im_Dooomed wrote:

Scorpion0x17 wrote:

So why did they ban short selling of certain key stocks just as the collapse started?

Just. As. The. Collapse. Started. Meaning, short selling didn't have much to do with the actual crash. To answer your question -> So people couldn't make huge profits on all those shitty stocks that were doomed to collapse because of their idiocy?

Short selling isn't that big of a business in a regular market, its just the way a person wants to do his trading, but, in a huge collapse of the market, ya, thats how you can make profit. Short selling isn't the cause of a collapse.

the independent wrote:

What sort of money is involved?

The hedge funds and investment banks that dabble in short selling do so with astronomical amounts of money. Analysis conducted by The Independent shows that hedge funds have made more than £1bn betting on a fall in HBOS's share price in the past two and a half months. One single hedge fund is thought to have made £1bn betting on the collapse of Northern Rock last year.

^(source)

the independent wrote:

So what's all the controversy?

The biggest concern is that short selling has often been associated with market abuse. The clearest victim of such abuse was HBOS itself, earlier this year. Over the course of just an hour one day in March, its shares plunged when rumours swept the stock market that the bank had financial problems similar to those that caused the collapse of Northern Rock. The rumours were totally false and the share price recovered later in the day, but not before investors with short positions in HBOS shares had made a handsome gain. City regulators are still trying to discover who started the malicious gossip about HBOS, but there is widespread suspicion that the rumours were planted by a hedge fund keen to make a fast buck. Such behaviour is illegal, but also very difficult to investigate.

Last edited by Scorpion0x17 (2008-10-08 15:19:08)

OrangeHound wrote:

Freke1 wrote:

Looking at the stocks (sold mine today with loss ) I'd say a lot of ppl are selling out. If nobody want Your stocks, they are worthless and we have a crash.

We already had a crash.  Selling low and buying high is never a wise financial decision ... the market is very over-sold right now.   I'm actually starting to move cash positions into the markets.

Last edited by DBBrinson1 (2008-10-08 20:09:51)

Freke1 wrote:

It's like when the banks say: "Don't sell if You have a long investment horizon. They will bounce back."
I say: "Why take the loss? You are just playing by the agenda that by not selling mine Your stocks won't fall."

Or:
the government: "We're f*cked, we have to make a rescue plan to stop people from loosing their faith in the banks"
me: "if You have the need for a rescue plan then You are f*cked and then I've no faith in the banks"

Scorpion0x17 wrote:

Im_Dooomed wrote:

Ya, so they bet the stock would go down. And the article says they created rumors that would cause it to go down so they can make money. SURE, that is wrong.

But HOW though, is legit short selling in general the cause of market collapse? Because thats what I do, and thats what I'm talking about. Explain that.

Its the current SELLERS of the stock who are the ones that are making a stock crash. Not the ones who do short selling. Short sellers profit from other investors in the market that are selling the stock, its not like they are pulling money out of the company's bank account. The market is a tug of war. Those who sell make money off those who are buying, and vise versa.

It is part of the cause.

Why?

Partly exactly because it is a zero-sum game - some one always loses, whether you're shorting or not. Partly because the value of a stock is determined by a combination of supply, demand (as I'm sure you know - as supply increases, value drops and as demand increases, value rises) and perceived value - now, by shorting you're saying "I perceive this stock to be worth less than it is" and so, all other things being equal, the value of the stock decreases.

Sure, if you're just a private individual without huge sums of money invested in the markets, you individually have little effect on the prices, but when you've got, not only the hedge-funds but also, 10s, even 100s of thousands of individuals shorting stocks, those tiny individual effects on stock values all start to add up.

Scorpion0x17 wrote:

san4 wrote:

Scorpion0x17 wrote:

It is part of the cause.

Why?

Partly exactly because it is a zero-sum game - some one always loses, whether you're shorting or not. Partly because the value of a stock is determined by a combination of supply, demand (as I'm sure you know - as supply increases, value drops and as demand increases, value rises) and perceived value - now, by shorting you're saying "I perceive this stock to be worth less than it is" and so, all other things being equal, the value of the stock decreases.

Sure, if you're just a private individual without huge sums of money invested in the markets, you individually have little effect on the prices, but when you've got, not only the hedge-funds but also, 10s, even 100s of thousands of individuals shorting stocks, those tiny individual effects on stock values all start to add up.

Why is that a bad thing if the stock is overvalued?

It's not. But short selling doesn't only drive down the value of over-valued stocks. If a stock is sold short, and there are no other contributing factors, it's value will drop regardless.

Scorpion0x17 wrote:

san4 wrote:

Scorpion0x17 wrote:

It's not. But short selling doesn't only drive down the value of over-valued stocks. If a stock is sold short, and there are no other contributing factors, it's value will drop regardless.

But when a short seller eventually buys the stock to cover the short sale, the transaction will have a virtually identical and opposite effect on the stock price.

No it won't.

OK, I as the short seller, borrow stock from you. I sell it at current market value. At this point to value of the stock hardly changes - because I sell at market value. But then, due to other factors, the value of the stock falls. And I then finally buy the stocks from you - but, crucially, at a lower value than I sold them for - and that is key - you have to remember that the value of a stock is largely based on what price everybody holding/wanting them is willing to sell/buy them at. By buying at a lower value to what I sold them at, my contribution to that perceived value is downwards - because I'm saying "sure, I'll sell at 15c per share, 'cos they're only worth 10c!".