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
What benefit does it give to buy a stock off another trader in the normal way? You’re basically just betting the company will succeed and hoping to make money off it – which might be good for you, but your investment doesn’t necessarily do much for the country. The wider effect it has is to push the stock price up. This means that the company can raise money more easily, because people have confidence in it. If the company is a beneficial one, then helping the company raise money might be a good thing for society.
Shorting a stock is also a bet that you’re hoping to make money off. The wider effect is to push the stock price down and to reduce confidence in the company and make it harder for them to raise money. If the company is bad, that might also be good for society.
Let’s say I’ve start a company with the business plan of digging a hyperloop tunnel under the Atlantic. Is this a good idea that will result in something valuable, or a colossal waste of resources that will never get anywhere? Let’s say it’s a hopeless idea, but I’ve persuaded a bunch of gullible investors that I’m going to make trillions of dollars. This creates an enormous bubble that will, when the company inevitably fails, burst. Everyone who lent me money will never get it back. By shorting my stock, you can (a) profit from everyone else’s idiocy, and (b) reduce the size of the bubble, meaning that when my company fails, it will be a smaller disaster.
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