Talk:Short selling
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Futures
- All I wanted to say was that in futures, short selling is selling a contract “before,” you buy it. That is the essence of the thing.
In order to balance the non-universal explanation I will explain shorting futures as it is mis-explained above. GT
- In futures, shorting brings with it an obligation to deliver in the future. Sellers are not selling something that they do not own yet, they may be selling something that is not even planted yet. In fact a farmer may have to pre-sell his crop to get the funds for seed. There is no borrowing of any securities like with stocks. The clearinghouse only as a good faith deposit, holds margin. There is no interest or dividends to be paid. There is no deterioration of your capital because of time as there may be with options. When there is no fluctuation in price it does not cost anything to maintain a short futures position. New contracts are only created out of open interest increasing transactions involving a new seller and a new buyer. Selling short futures does not mean that you owe a negative amount of anything. The seller may have it offset with actuals or a long position in something else.
Traders who trade spreads do not hope that prices fall. They may in fact own actuals in greater number than the short position. As when a rancher pre-sells part of his herd by shorting futures. Spread traders may be depending on their shorts to continue going up, just at a slower rate than the long side of the spread. The short side may be just to minimize drawdowns, reduce margin requirements and increase return on margin. It may not be expected to move at all, which is quite common. GT
I have changed the definition for "short futures" to say: "...usually before it is produced or bought."; I hope this is general enough to please everyone here... OwenX 19:57, 27 Jan 2005 (UTC)
It is not a true statement as concerns futures. Suppose you go short to spread a long position in Eurodollars. They are already produced and in this case you are not selling the Eurodollars before they are bought. Futures can be slippery. GT
Obligations to Deliver
Why is this one sentance?
In finance, short selling is selling something that one does not (yet) own. In futures, short implies an obligation to deliver something before it is bought.
The definition “something that one does not (yet) own.” Does not apply to futures. You may already own it. It is a separate explanation so it should be put on a separate line. If you are an expert in finance, I suggest that you clean up your act. If your have expertise in futures, than you can see the absurdity of the connection. It is too limited for U.S. futures markets, as they exist today.
We don’t trade in ownership as much as we trade "obligations," to deliver or receive. These agreements are called contracts. "A contract is any promise or set of promises made by one party to another for the breach of which the law provides a remedy. The promise or promises may be express (either written or oral) or may be implied from circumstances." GT
Term “short”
the page says, and this is about stocks, it says:
“It is possible that the term "short" derives from the name of a notorious stock broker of the 1920s that used the practice to defraud his customers”
How do you explain:
“ Although the Amsterdam bourse maintained that the decline in the East India stock was due to poor business conditions - not short-selling, in 1610 the government outlawed all short sales. As with most laws seeking to curtail the activities of bears - the market's natural libertarians - this edict was a dead letter from the start. The Dutch banned short-selling again in 1621 but to no effect.” [1] (http://www.prudentbear.com/press_room_short_selling_history.html)
The Dutch banned short-selling a mere 300 years before your universal short selling page says it originated from defrauding customers. GT
The practice of short selling may have existed under a different name, or without a special name of its own, long before the name "short selling" for this practice was coined. I read the statement about the 1920s as a discussion of the origins of the name, not the origins of the practice.66.203.174.9 14:19, 22 May 2005 (UTC)
Margin Call
1) I think the term "margin call" should be added:
A demand by a broker for additional funds, additional money or securities, because of an adverse price movement in one or more of your held securities to bring a margin account up to the minimum maintenance margin.
A broker will make a margin call if the price of one or more of the securities you have bought, with borrowed money, moves adversely (usually droping, but rising if shorting) past a certain point.
This is my definition i pieced together in my own words from many sources, it maybe incorrect so could someone please verify it (esp. the adverse part about marginal calls during rising securities during shorting).
2) Also "over-leveraging" is another that should be added, overextending yourself by shorting more then your ability to pay off in the event of a margin call.
- That all looks good, Shaun. Please feel free to add yourself. No-one will bite your head off :).
2) Over extending yourself has nothing to do with weather you are long or short or both long and short. It can also be caused by withdrawing funds from your account or an unexpected drawdown. They can also raise margins on you without prior notice.
Margin calls are just the result of being unable to maintain minimum margin overnight. You can manage margin just by adjusting your position size. GT
Invalid link - Bear raids
There's this link about Bear Raids and Uptick Rule but theres no atricle on it??
Can some1 pls post it because i wanted to know about it
Futures, options, spreads
"Why separate between Futures and Options? The two work exactly the same as far as short selling is concerned. Borrowing is just as irrelevant for options as it is for futures. Either add the comment to both, or remove it from both. Goldtrader, what's the obsession with the seasonal spread? If you think spreads don't have a place under this entry, let's take it out too." OwenX
Options main advantage accrues to the seller. Futures are a fair game, 50/50. The advantages we get from shorting futures are not available to option players. You do not understand one side of the other if you think they are exactly the same. My specialty is futures spreads, I can't speak for the options. Correct me where I am wrong. But I do know when someone is slinging it as concerns futures contracts.
I do not know why someone added the borrowing nonsense on there but I am now making it temporarily distinct from stocks also. The whole post is slanted against short sellers as it is. There is nothing negative or non-positive among anyone except pure amateurs about shorting futures. I trade spreads, if anything it’s this slanted anti-shorting baloney that has no place in an encyclopedia.
My obsession is with the mis-information that is perpetrated on the investing public by people how should know better.GT
Universal and neutral
The previous definition of short selling is out and out wrong. The definition should be universal and neutral. What you have there is a load of mis-information. It is misleading and untrue. It only applies to one small highly regulated use. Maybe you should change the name to something like “short selling (stocks only),” because it sure does not apply to real estate or normal businesses.
The current page says “In order to sell something short, one must borrow it from someone else.” Bill Gates did not have to borrow something from someone else, and he was selling short. How do you explain that?
I can sell 5,000 bushels of November Corn, I do not have to borrow anything. How can this page be true?
When Bill Gates sold an operating system he “did not have,” to IBM. Gates was selling short. He sold something before he bought it. He did not adhere to all these things this writer says. Short selling futures, real estate, and fungible property is a part of the Speculation business and it does not fit the current limited description used under this heading for selling short. GT
Removed Futures
- It is clear that stock people do not have a clue about shorting futures GT
- Whether or not they have a clue, you can't just decide you don't like to hear about it and delete it all. I rewrote the Futures section carefully. It is correct as written; a hundred thousand futures traders (myself included) aren't all wrong calling it "short" just because Mr. GoldTrader said so. Deal with it. OwenX 22:50, 27 Jan 2005 (UTC)
Speculation
Short Selling may be Speculation but I am not comfortable calling it Category:Investing [GT]
The two are not contradictory; the dictionary defines "investing" as committing money in order to earn a financial return. This means that 'speculating' is just one form of investing. Also, when it comes to categories, terms such as "Capital Loss", "Arbitrage" and even the term "Speculator" are all part of the "Investing" category, since they are all part of the investment world. More specifically, a market-neutral portfolio--which is the preferred investment of many institutional investors--will always contain short positions. There is nothing speculative about it; it is carefully crafted and calculated to hedge out general market fluctuations. OwenX 16:14, 26 Mar 2005 (UTC)