Short sellers often get a bad rap. Some may even give a derisive nickname like “shorties.” The longs will buy low and sell high, whereas shorts will sell high and buy low. Sounds simple, but short selling is not a natural extension of buying stocks. Short sellers have limited upside potential but unlimited downside risk.
However, one may contend that there is no stock that may go up exponentially and more often than not, a lot of stocks may tumble down to zero. Further, there is multitude of risks to short selling, for example the risks of short squeeze, up-tick rule, liquidity shortage, and dividend payout.
Therefore, it requires special skills and excellent risk management, which most hedge funds are adept at. It is interesting to note that short selling becomes popular after the stock market crashes in 1987 and 2000. This is because short selling is in effect a momentum investment. You short in a falling market and you cover your shorts in a rising market.
Here’s an article on how regulators have imposed a temporary short selling ban to try and stabilize the market.
Greece imposes temporary restrictions on short selling (Extracts below copied verbatim.)
Greece has imposed temporary restrictions on short selling as the Athens Stock Exchange (ASE) slumped to its lowest level since 1997.
“If you can’t short a market, this can impact the liquidity of the market,” said Derek McGibney, managing consultant at The IMS Group. “The view of Greece seems to be that its markets are suffering and this ban could signal a last ditch attempt to prevent attack from speculators,” he added.
The EU has adopted an aggressive stance against short selling since 2008 and has been particularly vocal against it since the sovereign debt crises of 2010 and 2011. The European Parliament originally called for a total ban of naked short selling of sovereign debt via credit default swaps (CDS) in its EU Short Selling proposal.
Meanwhile, South Korean regulators also announced a short selling ban as its Kospi Index fell 17% over six days. South Korean regulators, who already ban naked short selling, believe these latest restrictions will help bring about greater market stability.
However, one may contend that there is no stock that may go up exponentially and more often than not, a lot of stocks may tumble down to zero. Further, there is multitude of risks to short selling, for example the risks of short squeeze, up-tick rule, liquidity shortage, and dividend payout.
Therefore, it requires special skills and excellent risk management, which most hedge funds are adept at. It is interesting to note that short selling becomes popular after the stock market crashes in 1987 and 2000. This is because short selling is in effect a momentum investment. You short in a falling market and you cover your shorts in a rising market.
Here’s an article on how regulators have imposed a temporary short selling ban to try and stabilize the market.
Greece imposes temporary restrictions on short selling (Extracts below copied verbatim.)
Greece has imposed temporary restrictions on short selling as the Athens Stock Exchange (ASE) slumped to its lowest level since 1997.
“If you can’t short a market, this can impact the liquidity of the market,” said Derek McGibney, managing consultant at The IMS Group. “The view of Greece seems to be that its markets are suffering and this ban could signal a last ditch attempt to prevent attack from speculators,” he added.
The EU has adopted an aggressive stance against short selling since 2008 and has been particularly vocal against it since the sovereign debt crises of 2010 and 2011. The European Parliament originally called for a total ban of naked short selling of sovereign debt via credit default swaps (CDS) in its EU Short Selling proposal.
Meanwhile, South Korean regulators also announced a short selling ban as its Kospi Index fell 17% over six days. South Korean regulators, who already ban naked short selling, believe these latest restrictions will help bring about greater market stability.
