Short selling is an investment term and a way of operating financial assets. Contrary to bulls, bears borrow the underlying assets first, then sell them to get cash. After a period of time, they spend cash to buy the underlying assets and return them.
Short selling is a common operation mode in stock futures market. It is expected that the stock futures market will have a downward trend. The operator will sell his chips at the market price, and then buy them after the stock futures fall to earn the middle price difference. Shorting is the opposite of doing long. Theoretically, it is to borrow goods to sell first and then buy them back.
Generally, the regular short-selling market has a platform for third-party brokers to borrow goods. Generally speaking, it is similar to a credit transaction. This model can profit in the wave band of falling prices, that is, borrowing goods at a high level and selling them, and then buying and returning them after falling. So buying is still low, selling is still high, but the operating procedures are reversed.
Common functions of shorting include speculation, financing and hedging. Speculation refers to the expectation of future market decline, and then sell high and buy low to obtain the profit difference. Financing means shorting in the bond market and returning it in the future, which can be used as a way to borrow money. Hedging means that when the risk of assets in the hands of a trader is high, he can reduce his risk exposure by shorting risky assets.
It is pointed out that short selling and long selling are opposite. Theoretically, it is to sell the goods first and then buy them back. Generally, the regular short-selling market has a neutral warehouse to provide a platform for borrowing goods.
Short selling is usually an operation to predict the market decline. When the price of securities is high, it borrows securities from brokers and sells them. When the price of securities is low, it repurchases securities from the market and returns them to brokers to earn the difference. But if the market price rises instead of falling, it will cost more money to buy back the securities to be returned, resulting in losses. In the traditional stock market, investors will make profits when the market goes up, and short selling is a special way for investors to make profits when the market goes down. If the market falls as expected, you can earn the difference when the price is low. If the market does not fall but rises, theoretically there is no upper limit for the price increase, and it will suffer heavy losses when covering, so it is risky and speculative. Because of its high speculation, not every stock exchange allows short selling; Even if allowed, there are often more restrictions.
Short selling gives people a negative impression of "profiting from other people's losses" because of the market decline, but short selling stocks and other assets still has positive significance, which helps to find enterprises with fraud and exaggerated operations in advance, make excessive market prices return to a reasonable level more quickly, and recover the wealth evaporated by the bursting of the bubble.
Naked short selling refers to an investment method in which investors directly sell securities that do not exist in the market without borrowing securities, and then buy back the securities for profit when the market price falls further. As long as naked short sellers buy securities before the delivery date, the transaction is successful. Because "naked short selling" sells non-existent securities, the amount may be very large, so it will have a dramatic impact on the market price. Naked short selling is illegal in most markets.