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 primarily a self-interest, but you probably don’t go to work in the morning out of noble duty for the greater good either.
That said, shorts can provide a “service” to the market both by providing liquidity for the market and when they publish their reasoning *why* they think the company is failing.
If you’re an options trader and want to take the long bet that the stock will go up, you need another party taking the short bet. The shorts make the options chain function.
In the more traditional short sale scenario where the short seller has borrowed and sold a stock, they’re increasing the volume of shares in play on the market if someone actually is looking to buy.
And sometimes companies actually do lie or obfuscate their failures. They publish deep fried financials and lofty growth predictions that the short seller has looked into and sincerely doubts.
Some of the larger players in the short game will publish their own reports on the stocks they’re shorting, detailing their reasoning. If you’re planning to invest in a company and a short seller has recently taken a large position against them, you may want to know why.
There have been a few highly publicized cases lately where the shorts have been (at least temporarily) wrong, but usually companies with a lot of short interest really are in distress.
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