Naked Short Selling, Neverr Try to Do from Home
The Controversial Trading Strategy Gives Your Profits When Stock’s Prices Decline
Most of the investors have had no good opinion about naked or unprotected short selling .They think , in the financial market it should be either seriously reformed or completely banned .
If you have wrong perception about naked short selling , and you consider it, a cluster of that hedge fund managers , who are sitting around you in the nude. Then , I must like to straight your perception.
Actually, naked short selling , that is a type of market trading, is a highly risky legitimate version, which is often disapproved.
The securities & Exchange Commission controls the practice and intervened to stop
It, in financial stocks, after the credit crisis , during the turbulence.
Blame Short Sellers
Most of the investors consider short sellers a cause of bringing down stock prices, though, it is not proved by any solid evidence.
Traditionally, that over-priced borrowing stock of shares are done shortend and go towards a fall.
You do short selling and whenever the price of that stock decline, you buy back that stock at the declined price. In this way you sold at a high price and bought at low prices.
Thus, this difference in price is your profit.
On the other hand , in case stock’s price goes up instead of dropping, You will have to buy back that stock at an expensive rate, for replacing the borrowed shares. So, you sell at low price and bought at high. Thus, this difference in price is your loss.
Stock is done short, in a fringe account, the traders use leverage to enhance profits or may be accelerated losses, if the stock price goes up.
Critics say short selling brings down stock prices. Because short sellers sell the stock that they don’t even own. Short sellers have to deliver shorted shares prior to mandatory date, generally three business days.
However, when short sellers use short selling intentionally, to bring down the stock’s price, it is called market manipulation, which is not legal. Some time short seller, gets in his own game, which is called a short squeeze.
Soaring Shares Prices
This situation prevails, when the shorted share price increase instead of dropping. Short sellers are enforced to cover the shorted position from the open market, and when a lot of short sellers buy back shares of the same stock at a time price further get increased and also increase the trader’s loss.
The Securities & Exchange Commission placed restrictions on naked short selling and later on lifting them. Critics say these rules are much looser.
You can trust the subject waiting before regulators until the market is volatile.
I have reached at the conclusion, that inexperienced investors must stay away from short selling particularly naked short selling. This practice is just kind of gambling, and not the proper way to handle your future saving. Some time dangerous too.