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The impact of short selling

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Not applicable
I have to say, I really struggle to understand how short selling can influence a market. If I have sold short, then what is the big deal - Someone bought from me, and I will wait for a lower price before I cover. how on earth can I manipulate the market? I would argue that short selling creates more liquidity in the market, because two transactions take place - When I borrow the stock it changes hands to the buyer of my original short position, and the buy that takes place when i cover my position is me buying stock from the market to pay back the market maker (in stock). Even naked short selling seems difficult to influence the market?
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5 REPLIES 5
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Occasional Contributor
And short sellers are the only people with an interest in exposing dubiously inflated results. This adds a possible counter balance.
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Super Contributor
most NB..is that shorts in falling markets are the coveringand therfore buying when nobody else is....ie short sellers actually retard falls and that makes them a good thing..Just take a look at the fall in the DOW vs the Chinese market in 2008..the diffrence..no short sellers in China..ALSO and this is NB, in Markets where no short selling in China ..Also where no shorts are allowed the market is heavily biased toward inflated prices and will drive up and incourage bubbles as this is the only way a trader can profit... So Bring on the short sellers.. in fact I just keep adding to mine
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Super Contributor
You're missing the plot - its "naked" short selling the Germans are worried about. That's completely different than the short selling we do where you actually need funds in your account to back your market position.
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Valued Contributor
ya it's the naked short sellign which distorts things because it means an infinate pool of strock, rather then the actual real amount of stock ..
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Super Contributor
Skaaptjop, surely the impact would be on the price action? Someone seeking to drive the price down and get a panic going would only have to keep hitting the bid price, hard, continuously. Whether it was a sale, or a short sale, same effect. Overwhelm the buyers, push it down, done. Naked amplifies that hugely, obviously.
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