Short selling and other similar stock market things

[Bletchleyite]

Moderator note: some posts moved into this thread from https://www.railforums.co.uk/threads/eu-referendum-the-result-and-aftermath.132044/

Personally I think short-selling is evil and needs to be banned - betting on failure is not how things should work - in the stock market one should bet on and invest in success

 

[najaB]

Personally I think short-selling is evil and needs to be banned - betting on failure is not how things should work - in the stock market one should bet on and invest in success

There's no way that it can be banned unless prices are set centrally.

 

[Bletchleyite]

There's no way that it can be banned unless prices are set centrally.

It could be controlled by requiring auditable evidence that you actually own shares etc prior to selling them. Short selling effectively involves "borrowing" some of whatever it is, selling it, then repurchasing at a lower price to return to the organisation you "borrowed" them from.

 

[najaB]

It could be controlled by requiring auditable evidence that you actually own shares etc prior to selling them.

Which undermines the whole futures market.

The thing is, short selling isn't necessarily bad - it involves a lot of skill to recognise where something is overvalued and it can just as easily blow up in your face as net you a profit.

 

[Bletchleyite]

Which undermines the whole futures market.

That wouldn't be an entirely terrible thing in my view. Buy and sell things you own. Lend money you have. It'd reduce unfettered economic growth but the simpler world economy would make things much more stable.

 

[najaB]

That wouldn't be an entirely terrible thing in my view. Buy and sell things you own.

The basis of the futures market is farmers being able to sell their crops while they're still in the ground. Which gives them money to be able to buy the equipment, fertiliser, pesticides, etc. that allow them to be able to actually produce the crops.

It's not all about greedy bankers.

 

[Bletchleyite]

The basis of the futures market is farmers being able to sell their crops while they're still in the ground. Which gives them money to be able to buy the equipment, fertiliser, pesticides, etc. that allow them to be able to actually produce the crops.

That could be dealt with in other ways, such as simply borrowing money, or by selling shares for those who want the produce to invest in the business to produce it.

I genuinely think turning the stock market from a form of gambling into a positive-only form of investment (i.e. where you can only back things succeeding, not failing) would be a really, really good thing and massively outweigh the disadvantages.

 

[NSEFAN]

The basis of the futures market is farmers being able to sell their crops while they're still in the ground. Which gives them money to be able to buy the equipment, fertiliser, pesticides, etc. that allow them to be able to actually produce the crops.

In the case of farming, how accurately can the yield be predicted? Subject to environmental factors, the behaviour of the crops aught to be quite straightforward to model. A crop will grow according to its environment, which can be controlled to some extent and measured quite easily.

Other things like consumer demand are much more subjective. I don't doubt that certain people have a knack for knowing what consumers will want, and overall trends can be modelled, but is human demand as predicable as something physical? it certainly strikes me as much more subjective and risky.

 

[Bletchleyite]

Other things like consumer demand are much more subjective. I don't doubt that certain people have a knack for knowing what consumers will want, and overall trends can be modelled, but is human demand as predicable as something physical? it certainly strikes me as much more subjective and risky.

Risky yes (short selling is too as it can cause theoretically unlimited losses as the stock can rise to an unlimited level, whereas buying shares and reselling them can lose you no more than the price of the stock you bought), but with risk comes reward.

 

[najaB]

whereas buying shares and reselling them can lose you no more than the price of the stock you bought

Unless you've borrowed to be able to buy them.

 

[Tetchytyke]

It should have been banned after Goldman Sachs almost bankrupted themselves shorting on gold.

This, incidentally, is why Gordon Brown dumped our gold reserves- it was to protect the banks, not gormlessness.

 

[najaB]

It should have been banned after Goldman Sachs almost bankrupted themselves shorting on gold.

Again though, how can it actually be banned?

 

[Bletchleyite]

Again though, how can it actually be banned?

As I noted - make it compulsory to prove you actually own the shares before you can sell them.

 

[Tetchytyke]

Again though, how can it actually be banned?

Making it so you can't sell something unless you own it. If you own it, you can't short it.

Futures markets wouldn't be affected- you can sell something you own before it comes to full maturity- but selling stuff you don't own should be outright banned.

 

[najaB]

As I noted - make it compulsory to prove you actually own the shares before you can sell them.

Which would bring the markets to a complete and total halt. Day traders often only own stocks for hours or minutes.

 

[Bletchleyite]

Which would bring the markets to a complete and total halt. Day traders often only own stocks for hours or minutes.

Proving these things electronically would be easy. It doesn't have to be actual paper, just a provable audit trail of the purchase prior to the sale.

 

[edwin_m]

Another option (I suggested on the other thread but it doesn't seem to have made it over here) would be the so-called Tobin Tax, a small fee on financial transactions which wouldn't much affect those using them for purposes in the "real" economy but would hit the speculators who trade large volumes.

 

[Flying Snail]

Which would bring the markets to a complete and total halt. Day traders often only own stocks for hours or minutes.

So? Day traders, like all others who are only in the markets to make money off of trading are leeches on humanity, the world would be a far better place if these activities were stopped or the people involved culled from existence.

 

[Tetchytyke]

Which would bring the markets to a complete and total halt

Slowing down trading- making algorithmic trading more difficult- is no bad thing either.

 

[najaB]

So? Day traders, like all others who are only in the markets to make money off of trading are leeches on humanity, the world would be a far better place if these activities were stopped or the people involved culled from existence.

Why does *anyone* invest in the stock market if not to make money from buying shares and selling them at a profit? It's capitalism 101.

I suppose there are some institutional investors who see dividends as a more stable revenue stream than sticking money in the bank, but they are the exception rather than the rule.

By the way, many (possibly most?) day traders are individual investors.

 

[najaB]

Slowing down trading- making algorithmic trading more difficult- is no bad thing either.

I agree that algorithmic trading is a problem - if only because of what can happen when the inputs reach places that the algorithm designers didn't consider (anyone remember the Flash Crash?)

 

[edwin_m]

Why does *anyone* invest in the stock market if not to make money from buying shares and selling them at a profit? It's capitalism 101.

I suppose there are some institutional investors who see dividends as a more stable revenue stream than sticking money in the bank, but they are the exception rather than the rule.

By the way, many (possibly most) day traders are individual investors.

There are many individual investors and funds that are in it for the long term - combination of dividends and steady growth - and will buy and sell relatively rarely. But a lot of the problems with British industry in my view are down to the short-term nature of many City investors, encouraging managers to pump up the share price rather than build a stable business for the long run.

 

[najaB]

There are many individual investors and funds that are in it for the long term - combination of dividends and steady growth - and will buy and sell relatively rarely.

Even investors who are in it for the long term are likely to want to sell at some point, hopefully at a profit.

So does that make them "leeches on humanity"?

 

[talltim]

Pork futures FTW

 

[edwin_m]

Even investors who are in it for the long term are likely to want to sell at some point, hopefully at a profit.

So does that make them "leeches on humanity"?

Indeed no - having pension funds and the like taking holdings in companies is a vital part of how the economy works, and short-term speculation is probably just as damaging to them as to the companies whose shares are suffering from it. However this sort of transaction is already subject to stamp duty so a small extra tax would make little difference here. I'm by no means an expert on this, but according to Wikipedia the "Tobin Tax" was originally suggested to apply to currency speculation but others suggest broadening it to other short-term transactions.

 

[lineclear]

There's no way that it can be banned unless prices are set centrally.

Short selling was temporarily banned in several countries in 2008.

 

[najaB]

Short selling was temporarily banned in several countries in 2008.

And how effective was that?

(Answer: Not at all)

 

[Tetchytyke]

Why does *anyone* invest in the stock market if not to make money from buying shares and selling them at a profit? It's capitalism 101.

But that's the problem with shorting- there is no buying a share and selling it for profit.

 

[najaB]

But that's the problem with shorting- there is no buying a share and selling it for profit.

Yes there is. The difference is just one of order. Sell at a profit then buy at a lower price.

 

[Tetchytyke]

Yes there is. The difference is just one of order. Sell at a profit then buy at a lower price.

In shorting the shares are not bought, they're rented from someone else. Which is, frankly, ridiculous.

Selling high and buying low isn't shorting. That's just common business sense; you sell shares you think are overvalued, you buy shares you think are undervalued.