Short selling | Marketplace Whiteboard

The practice of short selling has been blamed for the collapse of several major companies' shares during the financial crisis. What is short selling? Paddy Hirsch explains. #MarketplaceAPM #EconomicExplainers
More coverage of the financial crisis is at marketplace.org/financialcrisis
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[@Djayrocker94]

It's 2021 and Gamestop brought me here.

[@ThePaintballernick]

me too Notice how every video ends with someone needing a drink?

[@thomaslacroix6011]

Me too

[@Zaemon037]

猿、一緒、強い！💎 👐🚀🚀🚀🚀🚀

[@SomeofThisSomeofThat]

This was the best explanation. A lot of other videos misses the small details. How something happens is important to know what happens.

[@mehmoodahmed1628]

Sam screwed caitlin right as shares drop by 50%? How's she happy?

[@vanguardanon4979]

@@mehmoodahmed1628 she entered the contract at a price she thought was fair based on the information she had available. Its not Sams job to make Caitlin happy, or make sure she makes good investments. What he means by happy is she got her shares which is all that is required.

[@c.md_]

Recently, because of all the coverage of the gamestock shares, wanted to come and learn about this. As someone who knows very little about the stock market, you gave me confidence that at least I can understand a little of what's going on behind the scenes, thank you for this presentation! :)

[@Bombatron]

I appreciate the time, effort,intelligence and simplicity with which you explained the concept. I look forward to seeing more informative videos about the nuances of the stock market from you! Thank you again Paddy!

[@brandonswan9247]

I can't believe how much Liam Neeson knows about the stock market.

[@aidenlong9790]

"I will find you,, and I will short sell you."

[@livestreamfailsdaillycompi9934]

@Jacob Watson He looks like him

[@delishdida]

He reminds me of Peter from the show heroes

[@ginnymonroe4918]

Hi Paddy Hirsch, thanks for this excellent "Shorts" breakdown, I was R&Ding for a story. Thanks Ginny Monroe

[@beschuitje01]

Great stuff! Needed this info for a school assignment, you explained it better then any of my teachers. Tnx.

[@dougcrescimanno]

Excellent explanation. Really appreciate you taking the time to explain this to me.

[@sandysutb]

Very clear and crisp explanation... Thanks for the excellent video

[@JoshuaH688]

Thanks! I've been trying to get my head around the subject, and this helped. The presentation was outstanding.

[@MrWinAlot]

Once again, great video! you explained it soo well, you got me needing a drink :)

[@Monikblessed]

Excellent Teacher! I could learn a great deal from you.

[@pdt385]

Awesome explanation of short selling...Learned alot, thank you for this...

[@RAYMONDBCE]

Better explained than top videos of youtube search on sort selling explained

[@mackman3294]

Great explanation I saw many vedios and I was more confused after watching them but this was very educational easy-to-follow

[@TomSleeUK]

Did anyone else smile when they realised how this worked? I found it fascinating compared to buying shares which seemed ordinary to me.

[@paultwiss199]

Really good video and very well explained.

[@BigO8872]

Thanks, that was really helpful, keep up the good work.

[@mnm121314]

to sum it up, it's selling shares that you don't have to someone. great video like usual paddy

[@AmanYadav-kh4zx]

Great Explanation

[@jasonyoon4910]

Thanks, Professor!

[@rajanaldo]

Wow! thanks for the explanation. I just watched a video on the AJE channel, where they discussed the 15-day ban on short-selling. But they did not explain it like you did. Although, maybe they had time constraints because their vid was only 3 minutes long.

[@bryn11036]

Great, please do more. Cant wait to show my ECON professor at OSU.

[@LegendaryNemesis]

Best explanation

[@trev_tennessee1939]

Paddy. I just started watching these white boards today being someone who will be coming into a large inheritance in about four years. Thank you so much for the education and intend to make the most of my money largely based on your wisdom. You are excellent and I thank you so much for this free and easy to understand resource Edit for paddy vs party

[@mihir777]

Congrats! Tens of millions?

[@fusion2000]

it is quite simple. A legal short sale involves the legal locate, borrow and deliver of an authorized, registered share. The market price of a stock is determined by the supply and demand. As long as supply is legally "created", proper price discovery can be attained. When shares are illegally sold, supply can overwhelm demand and create artificially low prices. Furthermore, these illegally created shares will trade in the system, diluting the authorized float. Like adding water to wine.

[@abhinavitsmebellamy]

Brilliantly done. I'll drink to that!!

[@marketplaceAPM]

Cheers!

[@dancewithvish]

Right. So this was perfect! Couldn't have been explained more simply tbh. Thanks

[@dudeman209]

I've got a question I hope somebody can answer. How can you hedge against a short of a stock if there are no options for the stock. Usually, you would hedge a short by being long a call. However, you cannot do that if there are no options available. Obviously, you could set a stop order; however, how would you hedge without a stop order or options. I'm not interested in using statistical arbitrage in order to hedge by the way.

[@Jliax1]

@estodril This seems to be the issue indeed, thanks for explaining, the video missed this conclusion imo.

[@majinspy]

Yah I did some more research and figured this out. Thx for response though :)

[@PaulyV93]

Hypothetically speaking what if shorts failed to deliver tens of thousands of shares, and appear on the SHO threshold list? Is it possible that more shares that exist in a float can be bought in the stock market?

[@l.f.1031]

Old videos are often just better.

[@rajanaldo]

@wcoy79 Basically, Sam increased the supply of shares, with the bet to Kaitlyn. Therefore, the supposed increase supply of shares causes prices to fall.

[@WazzoLazr]

Jan 2021, GME

[@KinGIIRomE]

How does one sell without having the actual shares to begin with...? We cant do it on Robinhood or Webull...

[@Catchetat]

is this the same as put option?

[@lidarman2]

Good explanation However, it seems like it would behoove Catlin to renegotiate the deal, leaving Sam off the hook and her off the hook in getting stuck with a loss. Do the mechanics of the system not allow the renegotiation?

[@Moviemakr]

Definitely see the movie "Stock Shock" about hedge funds and short selling the market and the effect it had on Sirius XM stock in particular--short sellers ran it down to 5 cents a share at one point. On DVD only, of course--pretty much everywhere but cheaper at the Stock Shock movie site

[@megacolor1105]

hey this is the same thing is happening right now to AMC , GME and a lot of other stocks!

[@charlesyoung6550]

Paddy, What I don't understand is how naked short selling can affect anyone other than the individual performing the short sales. Is it that the purchaser of the shares is potentially being robbed? If so, how does this effect the market?

[@Jose-bh6on]

I am not sure, but I think that when I naked short appears the price falls and then when it fails to deliver the price obvously doesn't recover it's original price. So it's nothing happens after failure to deliver for the players but the price has went a little down. We can imagine what happens when many of this irreversible price drips occurs simultaneously or became a significant percentage of the trades.

[@Smohkey]

You're a beast! thank you!

[@nickfleming3719]

So where does the shorter's profit come from? In reality it comes from market stabilization, some from the top, and some from the bottom of the market. So lets say that Sam offering his shares for sale initially increased supply and thus lowered the market price from $1,250 to $1,000. Then when prices dropped and he wanted to buy, that increased demand and thus increased the market price from $250 to $500. $250 at the top, $250 at the bottom = $500 total profit.

[@dankane8625]

Ive understood this for years, except for the one part that nobody ever explains, and that is... how do you sell shares that you dont have? That never works on my trading platform. Are people actually trading stocks in person and signing contracts with their neighbors? How does a person make such a transaction?

[@BuildinWings]

This is a great explanation. It also describes gambling with extreme collateral damage for the rest of us, and shouldn't be celebrated. Gamble with your own money - Speculators screw our commodities markets.

[@WangChung81]

Man, it's a good thing Wall St. learned its lesson and didn't do something stupid like naked shorting over 100% of a popular game retailer and a movie theater chain. Could've led them to a lot of trouble.

[@shocker147]

Dumb Question: If this hurricane hit Florida and devastated the orange crop wouldn't the result be an increase in the price of FCOJ because the shortage of oranges would allow FCOJ to justifiably raise the price of OJ concentrate? Would a decrease in the number of oranges cause an overall decrease in revenue of FCOJ instead? What would happen to the price of OJ in the commodity market? Is this where the price of OJ increase? Perhaps I have the two confused. Please clarify. Thank you!

[@PANKAJMAKWANA1990]

thanku vry muchhhhhhhhhhhhhhhhhhh

[@tensorprodukt]

@genesistwoeighteen I fully agree with you but I think that to beat this enemy we have to get a full understanding of the Mechanism, and search for its weaknesses. I is the nature of some people (if not of all) o try to dominate others , and to start thinking that they are more important and that their piont of view is the truth. And once they are on top they become blinded by their Power.

[@rumisouth]

Two big problems: (1) naked short selling is illegal EVERYWHERE. (2) The badness of NSS doesn't end with a short sale gone wrong. It continues when the imaginary shares remain in the marketplace, being traded! That's right, you have no idea whether your shares actually exist. To give you some idea of how much this is going on, CEOs have bought 100% of their company's stock only to see tens of millions of shares traded the very next day.

[@jeppedau8818]

I love it

[@raportmercado1165]

my first trade was a short sell in AA, it's very risky but I like short sellings because when prices falls, they fall faster and deeper than Rallies. Btw when you are a simple retail trader, jhon, catlin and shawn are the same: the broker (and market maker), no naked short selling allowed only short selling.

[@timfronimos459]

May I ask what I'm certain is a horrendously naive question? Short selling. what general category does this subject belong to? Economics, banking, finance or just business.

[@YTarindamdas]

How does this drag the market down?

[@orlock20]

Look up "flash crash."

[@munib1000]

GME has been naked short sold at least 500% - 1000% - July 2021.

[@LCPGAY]

@abqturkey1 its simply that sam isnt able to find sellers, no one wants to sell him any for whatever reasons.

[@abeone10]

i thought OJ was a commodity , so it should be trading as a contract , not shares. good point thought ,,!!

[@wcoy79]

Question: Since Katelyn paid Sam $1000 to deliver the shares in 3 days, and he is unable to deliver the shares; what is Sam's consequence? If he can't find shares to buy, then what can Katelyn expect from him? Also, I can see how this would upset Katelyn, but I don't see how it would Drive Down The Market. Please explain. Thank you in advance.

[@joabphilosophy2138]

why won't Caitlyn purchase shares on her own instead of exchanging them from Sam?

[@nongski]

how about a video of how the crisis started for those who live under a rock? (like me)

[@MatthewYoungProducer]

@dtoften Because she is also in the bet: the bet the shares go UP !

[@gulllars]

@dtoften maybe because she can't get any shares from the market without paying above their market price, but Sam promises them at market price, and as long as she doesn't have to pay him upfront and pay the market value when she recieves them, she's not at risk to take a loss from taking his promise, only risking that he won't be able to keep his promise (which could ruin his reputation).

[@patriciodasilva7902]

What I don't understand is why would somebody lend you shares in the first place?

[@PaulinTaegu]

Most investors do not read the fine print of their Margin Account agreement. You used to have to request a Margin Account and be approved for one before. If you open a new account at a Brokerage now, you will automatically be given a Margin Account even if you never intend on using a Margin loan. The Margin agreement authorizes the Broker to lend out shares in your account without notifying you or sharing any fees received with you. Now do you understand why Brokers are more than happy to lend your shares out to short sellers?

[@Jaykh2o]

Sam sounds like a funny way of saying Kenneth C. Griffin

[@PennsylvaniaHistoryBuff]

So it is greedy people ripping each other and unsuspecting people off. Just what I tought.

[@robertmills3830]

Didn't John turn a loss here? My question is where did John get his shares!?

[@orlock20]

John was the owner of shares. Somebody has to own shares for the shorting to work. John is the owner of said shares. Nobody in naked shorting has to own shares until the buyback.

[@sukrajrai1265]

✨✨✨✨✨

[@jamesdsolsen34]

the players have all changed. but the game has changed!

[@MirageScience]

i cant believe people need this to be explained if they know 2 words supply / demand

[@majinspy]

The speaker never explains why this causes the stock price to drop :\ Sean owes caitlin 100 shares...ok. Why does this cause the stock price to drop?

[@tomp4925]

The moral of this story...... Bring back the uptick rule if someone wants to sell short!

[@AMGandBRABUS4LIFE]

U can buy only 1 Book in German about Short selling...why???? it´s not forbiddden here.....

[@SeedsofJoy]

In this example won't John also be unhappy? He had 100 shares shares for £10 now he's only got 100 shares for £5.

[@deletemepleez]

thanks to the market changes in 1933 (i believe) we now have short selling.

[@somefo0]

I suppose the reason for stocks taking a deep dive is because there is more supply of the stock, which doesn't doesn't exist. Basic supply and demand: more supply, price goes down. There is an interesting 3 part video that explained why the financial institutions failed through short selling. watch?v=xUKSU1qahgE&feature=related writerjudd

[@victorsasami]

THats' UNCLE Sam, mind you!!! LMAO!!! muuuhahahahah

[@tensorprodukt]

hmmm This explanation is inomplete i think because you are not selling to one person but you are throwing the shares on the market. Thus influencing the Price! and in the case of Nacked short selling you create virtual price decline because you are selling things that are not part of he market capitalisation. so a priori you are creating a false influence on the price.

[@ayorke]

Overdone example: If 100 shares in the market could be traded but 150 shares currently shorted because 50 naked, price is likely to drop much more quickly.

[@FordyHunt]

Huh? When does Sean owe Caitlin anything??

[@JohnKyleSutton]

Caitlin’s happy?

[@wreslinga2]

he gets come commission...and he is long so he obviously thinks prices gonna go up....so he was thinking 15$ + commision..

[@vuufke4327]

wait, so john is bagholding through the down trend, why would he be happy?

[@el_dude]

You can change the name Sam for Ken and it will do the math :-))

[@basit147]

*Who Is Here After GameStop Short Squeeze 2021 ?*

[@jmlakes]

Caitlin is not happy, she just got screwed by the hurricane.

[@adosub]

how is John happy?he could have gotten rid of the share when it was at 7$ .Isn't he losing from this?

[@orlock20]

This is an extreme dream by short sellers. That's why you may hear a lot of bad unfounded "news" on a company in order to drive the stocks down. Usually a stock may drop 10% or less and to make any profit, the short seller has to borrow a lot of stocks using a money loan called a margin. Stocks go up and down on a daily bases, but sometimes continue to go up for years. This is a good way for the owner to make extra money while he or she waits for their retirement or whatever to sell.

[@Decebal825]

this does not make sence to me at all. if the stock market price is $5. the short seller can simply make a higher bid.how can the price go down ?? if the price goes down doesn't that mean someone is selling? someone must have sold for $5 why you can't buy them at $6. this short selling excuse of the market collapse is BS. prices are falling because if deleveraging on all the margin leading. ie just like the 1929 crash.

[@jodwhitfield]

I know this was over 10 years ago, but if you are still alive, how do you feel about AMC and GME? Seems like the world is unhappy with short sellers

[@samuelstefanek2211]

GME anyone? XD

[@JuanchoMan]

john is the one who gets screwed, i dont think sam is really john's friend anymore.... lol

[@HafeezBlackLeg]

Shawn lose money while he bought the share at $10 apiece before

[@xavy009]

GME

[@mrmarvel1671]

AMC to the MOON

[@ericlavender4612]

Gamestop brought me here

[@mtdeezy]

You make it seem like everyone is happy though. But Sam took $500 from John, albeit legally. Now John will see what Sam did and he may never want to trade with him again. I know it sounds dumb, but couldn't that be an important consideration for Sam? Not to mention Caitlin who bought shares from Sam and then lost $500, now Caitlin might be suspicious buying from Sam in the future. The only person Sam didn't upset was Shawn who probably isn't really even "happy" because he sold them for less.

[@vishaljadhav-ts7km]

Mikey Deeze Jo

[@shadow.banned]

You and "Sam", lol...

[@jamesyarbrough4777]

maybe sam should go get a real job instead of selling shit he doesnt have.