Thursday, September 18, 2008

Short Selling to be banned

(Photo courtesy - The Web)

I was hoping that this would happen and finally here it is. The Feds and the Securities Exchange commission are planning to ban short sales temporarily ( might be Finance stocks). ( Britain has already banned shorts in Financial stocks today)

In my opinion, 'Short sale' must be banned totally. I've always felt stock markets are authorized gambling dens and Short sales are the crown!

For those of you who don't know what a short sale is - It is to sell a stock you don't own and then buy it back at a lower price, pocketing the difference. Though there is a lot of risk, market players who have tons of money can easily manipulate the market by shorting ! Today we know how markets are driven !! Mostly manipulation by big time players !! ( MHO).

There was a controversy a few weeks back that commodities trading was driving oil up and not the actual demand/supply situation. There was a talk about banning oil trades. It died down..but suddenly oil fell from around 150$ to now around 100$ ! Was that a coincidence? ( I still wonder...why this steep drop !! )

I don't know why these transactions were allowed in the first place. Glad that the Feds are looking at this at least now.

Let's see where Dow goes tomorrow. I speculate - atleast 100 points up !!


Ganesh Venkittu said...

Ramesh - read the WSJ today on an article about it ( you sure would have)..there are two articles - one on the proposed rule and other by a columnist who argues that its not bad to short....

the type of short selling that supposedly is to be banned first is what is termed a "naked short" -- when the act of borrowing the stock in the first place (to short it) in itself has not happened....

again, I am not sure shorting is bad....the line is divided on that in wall street.....its speculating that is bad....(as my family can attest to when during Harshad Mehta's reign, they shorted NB footwear stock and got BURNT BIG TIME)..

Short selling when done systemically and mathematically after a thorough analysis of the stock and its driving parameters is a darn good predictor
of what the public feels about the stock. In that context, its a market driver. If you believe in forward and future contracts as a way to predict where gas prices are headed, a short is one such agent for a stock...

its only when people take it to manipulate the prices/speculate that they put everything into trouble..


Ganesh said...

NV there is going to be big bailout plan this monday watch out for that.

Narayanan Venkitu said...

Ganesh Venkittu - Shorting - Isn't it like gambling? Why would someone sell without owning it? Can it work in real world? Forget Naked shorts or regular shorts.

If stock market is about investing and seeing the money do you define Shorting?

The Hedge funds support shorting and we know why !!

Bottomline. I am so happy that the rules are in.


Ganesh - Yeah I am waiting to see!

Karthik S said...

Shorting is very essential to bring a balance the other view as to why a stock is over valued.

Shorts actually borrow the stock from an owner and sell it. When the price goes down they buy the stock and give it back to the owner who they borrowed it from. Ofcourse this all happens without your knowledge.

I have shorted and when you are short and when the company declares dividend, you'll have to pay that dividend. Naked short should be banned.

Anonymous said...

Banned or not...This kinda trading wouldnt make sense in long term...
as you say gambling is gambling
karthik sankaran

vishy said...

Short selling is one way to keep stocks at their current valuations... I think it was not a good idea by the SEC to remove the uptick rule on short selling.. (i.e previously u were not allowed to short sell a stock when the last 3 ticks have been downward.. )

but any way today's stock makt is nothing but an online casino.

The bottom line is you r going to make some and lose some if you are a trader. As shrewed investor one must always grabthe opportunity to buy quality stocks at lower prices during such turmoils.. and hold it through the thick and thin and endure pain to be sucessful in the long run...

and its all easier said then done.

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Good to have stumbles into this blog

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