Question about shorting?

MrsJohnMurphy

Here's something I have been wondering about for a while and cant figure out.

I obviously know what shorting is but what I cant understand is why supposedly the likes of pension funds are willing to lend the shares in the first place.

I know that they supposedly charge a fee to lend out the shares but in lending out the shares are they not really facilitating the people who are looking to drive down the price.

Maybe its that the lenders are not bothered about the short term movement of the share price coz they are looking at the long term price ... or maybe in practice most shorting just naked shorting?

What % of shorts are typically naked does anyone know?

Anyone got any ideas?

mjm

pocketdooz

MrsJohnMurphy wrote: »

Here's something I have been wondering about for a while and cant figure out.

I obviously know what shorting is but what I cant understand is why supposedly the likes of pension funds are willing to lend the shares in the first place.

I know that they supposedly charge a fee to lend out the shares but in lending out the shares are they not really facilitating the people who are looking to drive down the price.

Maybe its that the lenders are not bothered about the short term movement of the share price coz they are looking at the long term price ... or maybe in practice most shorting just naked shorting?

What % of shorts are typically naked does anyone know?

Anyone got any ideas?

mjm

No, I don't think you do. When a short is traded, there is no physical person on the other side of the trade that has to lend the shares in the first place. It's all done through an exchange.

Beyond that, I don't really understand what you're looking for an answer to . . .

Idu

Your wrong to assume that people who short are driving the price down. Is anyone who buys driving the price up?

woodseb

many funds like ETFs or mutual funds rely on stock lending to keep their costs down and make them more attractive. As they are generally passive they don't really care if somebody else is trying to short. as other posters said it is not necessarily bringing the price down in the stock

MrsJohnMurphy

woodseb wrote: »

many funds like ETFs or mutual funds rely on stock lending to keep their costs down and make them more attractive. As they are generally passive they don't really care if somebody else is trying to short.

Thanks for that answer, makes sense.

woodseb wrote: »

as other posters said it is not necessarily bringing the price down in the stock

Ok maybe not normally, but I was thinking e.g. towards the end of the last year when some of the uk financials are nosediving and the likes of hedge funds were being blamed for deliberately trying to drive the prices down by spreading rumours etc after they had shorted thm.

mjm

woodseb

MrsJohnMurphy wrote: »

Ok maybe not normally, but I was thinking e.g. towards the end of the last year when some of the uk financials are nosediving and the likes of hedge funds were being blamed for deliberately trying to drive the prices down by spreading rumours etc after they had shorted thm.

mjm

that's true in some part, but look what happened to share prices after the short ban on financials

Idu

Also look at a case like Enron where they manipulated the market in their favour to drive the stock price up. Sadly the market is open to this kind of thing from both sides, only seems to make big news on the way down though

xt40

Idu wrote: »

Your wrong to assume that people who short are driving the price down. Is anyone who buys driving the price up?

thats an absolutely ridiculous thing to say.
of course shorts drive prices down especially where no uptick provision is in place. its well accepted that shorts conspire to attack companies.

Idu wrote: »

Is anyone who buys driving the price up?

that question does not even deserve an answer.

woodseb

xt40 wrote: »

thats an absolutely ridiculous thing to say.
of course shorts drive prices down especially where no uptick provision is in place. its well accepted that shorts conspire to attack companies.

it's not well accepted. some use shorts as a way of attacking companies but there are many other valid reasons to short a stock such as market making, pair trading and a variety of derivative and hedging strategies

Time Magazine

xt40 wrote: »

thats an absolutely ridiculous thing to say.
of course shorts drive prices down especially where no uptick provision is in place. its well accepted that shorts conspire to attack companies.

It depends on how you interpret that sentence. "It's well-accepted that a small minority of shorts conspire to attack companies" is far more true. And besides, if shorters drive the price down there's more value on the market. Don't sell, buy.

Idu

xt40 wrote: »

thats an absolutely ridiculous thing to say.
of course shorts drive prices down especially where no uptick provision is in place. its well accepted that shorts conspire to attack companies.


that question does not even deserve an answer.

well accepted by whom? By the companies who blame short sellers for their poor stock performance? How is that an accurate gauge? Boi,Aib and Anglo all blamed short sellers for their share price drop. I think short sellers are a convenient scapegoat at times.

Obviously some act maliciously to drive down share prices but they are the minority.

daveirl

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