This is what we usually call short selling.

Short selling refers to selling stocks that investors don't own (or borrowing from investors' accounts) and hoping to buy the stocks at a lower price in the future. In short selling, brokers must borrow shares or arrange for the delivery of shares borrowed by other parties. When you expect the stock price to fall, you can buy these sold stocks at a lower price. If the subsequent buying price is lower than the selling price, the net difference between them is your profit.

However, please note that although short selling means profit when the stock price falls, short selling will also cause losses if the stock price rises, because in the end, you still have to buy stocks to supplement the stocks you borrowed. Since the stock price can go up indefinitely, so can your losses, unless you can buy back the stock in time. In addition, under certain market conditions (such as the current China market), short selling may not be allowed. For some exchange markets, short selling cannot be carried out below the best selling price (the selling price is equal to or lower than the previous trading price).

Stock index futures

The full name is "stock index futures", which is based on the stock index. It is a standardized agreement that the buyer and the seller agree to trade the stock index at a predetermined price in the future.

The stock market is a financial market with considerable risks, and stock investors face two kinds of risks. The first category is the risk brought by the market price fluctuation of specific stocks affected by specific factors, which is called unsystematic risk; The other is the market price risk brought by the rise and fall of all stocks in the market under the influence of factors acting on the whole market, which is called system risk. For non-systematic risks, investors can eliminate them by increasing the number of shares held and building a portfolio; For the latter risk, it is difficult for investors to avoid it only by buying one or more stock futures contracts, because the combination of one or more stocks cannot represent the trend of the whole market, and it is impossible for one person to buy and sell all stock futures contracts. In the long-term stock practice, it is found that the stock price index basically represents the trend and range of stock price changes in the whole market. If the stock price index is converted into a tradable commodity, the futures contract of this commodity can be used to protect the whole market. The fundamental reason for using stock index to preserve value lies in the positive correlation between stock index and the whole stock market price.

An example of short selling arbitrage

The first three articles of the book Manipulation by Lang Xianping, a famous financial expert, describe in detail the classic cases of Hong Kong institutional investors manipulating the stock prices of China Mobile, China Unicom and China Telecom through short selling mechanism.

1. Move

The characteristic of this case is that institutional investors have already sold China Mobile in advance, and then spread the news that is not conducive to China Mobile in the market to depress the share price for arbitrage.

What happened: At the beginning of June, 2000, 5438+065438+ 10, institutional investors shorted the stock price at a high level for the first time without any negative news about China Mobile. After the short-selling behavior was completed, they advertised it. They speculated or knew in advance that China Mobile would implement one-way charging, and at the same time downgraded China Mobile's share price rating for several days, causing panic in the market, mainly among small and medium investors. China Mobile's share price plummeted, first falling below the psychological barrier of 50 yuan, and then falling to the lowest level in two months. Then if the agency takes the opportunity to recruit specific personnel from the Ministry of Information Industry, its share price will continue to fall by 20% compared with last month. When the organization sees the target, it will close its position and make huge profits. This incident alarmed the China municipal government, and the government came forward to refute the rumor at the meeting held by the organization. The stock price rebounded from 65438 in early February. These institutional investors have made huge profits in the stock market and futures market.

2. China Unicom

The characteristic of this case is that China Unicom and China Mobile are close to 22% of the market value of the Hang Seng Index, and institutions can manipulate the Hang Seng Index for profit by manipulating China Unicom and China Mobile at the same time.

What happened: Hong Kong Hang Seng Index Service Company announced on May 4, 2000 1 year that Unicom was included in the Hang Seng Index from June1day. This good news was released and short selling was active in the market. From May 4th to 8th, short selling is coming. In May 10-1 1, the stock price was affected. On May 14-19, Unicom was not included in the Morgan Stanley Index (previously rumored), and its share price continued to fall. May 2 1 -29 was included in the constituent stocks, and the stock price rose steadily. After June 1, the dust settled, the stock price fell, and the short sellers closed their positions and made a profit.

After China Unicom was included in the Hang Seng Index, China Unicom and China Mobile approached the market value of Hang Seng Index by 22%. Judging from the futures yield of Hang Seng Index and the relevant data of the two companies, the stock prices of the two companies have a correlation of more than 70%. Therefore, large capital or institutional investors can manipulate the Hang Seng Index by manipulating China Unicom and China Mobile. In July and August, institutions touted and then suppressed Unicom's share price, while shorting Unicom and China Mobile's shares, which led to the decline of the Hang Seng Index, and then made huge profits in the Hang Seng Index futures market, killing two birds with one stone.

3. China Telecom

The characteristic of this case is short selling China Telecom arbitrage MSCI, that is, the Morgan Stanley bond index series. The battlefield for institutional investors to gain profits is not the official Hong Kong Stock Exchange, but through active over-the-counter transactions. Trading techniques emerge in an endless stream, which can be described as an advanced version of institutional manipulation of Unicom.