What’s the purpose that benefits the whole of the economy? I don’t understand it’s purpose other than to bet on a losing stock. Is it purely for hoping a business will fail? Where is the benefit outside of the individual shorting? The idea of shorting a stock seems unmoral and unethical. Basically why is shorting even allowed to be a thing?
In: Economics
It’s really just a baloon credit with variable interest rate if you think about it.
Somebody borrows an asset, in case of a credit, that would be the principal in case of a short sale it is the security. This provides them with the liquidity to run a business or invest. They pay a recurring fee for a period of time, the CTB for the short or the interest for the credit. After the term is up, they repay the debt in full plus or minus the change to the value of the asset. In case of a credit, due to inflation, the principal _almost always_ looses value compared to the time of borrowing. Every credit is a short on the currency it’s taken out in with the interest _usually_ eating up all of the profit margin.
For the lenders side, it is an insurance. If you have an asset and you feel like it might loose value, you can lend it out and at least get the CTB for some time. It becomes a dividend on a falling stock. You are more or less paying someone a fee to limit your losses. This can be useful if you want to hold the stock during a volatile or bearish period rather than sell it at the peak.
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