So. I admit, I have absolutely zero understanding of how the stock market actually functions. None at all. Even what I think I know I'm pretty sure is wrong so I will just upfront say I have no understanding whatsoever.
I read articles like this as if I'm reading advanced quantum physics - like I understand the words they are using, I understand the concepts of "buying" and "selling"... but I have absolutely no idea what they're actually saying, right? So articles like this are singularly unhelpful in actually informing the public if the public has no idea what any of the contents of the articles mean (Yes I am being somewhat self-centered in thinking that since I don't understand any of this that at least some sizeable portion of the populace at large does not either.)
Now, a friend just shared this with me and I'm sitting here going... frighteningly, I think I understand what this is saying, and secondly, how in the hell does our economy function?? Beyond just - they paid the government to make this legal - how is this legal!? How is any of this legal?
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The dumbest thing I've ever bought
was a 2020 planner.
"Does anyone ever think about Denethor, the guy driven to madness by staying up late into the night alone in the dark staring at a flickering device he believed revealed unvarnished truth about the outside word, but which in fact showed mostly manipulated media created by a hostile power committed to portraying nothing but bad news framed in the worst possible way in order to sap hope, courage, and the will to go on? Seems like he's someone we should think about." - Dave_LF
That's an explanation I can actually understand. Thanks.
I heard that the hedge fund that went bankrupt was handling money for pensioners, so while it's fun to think of the little guys outthinking the big ones.... that's people's retirement money they are playing with.
Maria wrote:That's an explanation I can actually understand. Thanks.
I heard that the hedge fund that went bankrupt was handling money for pensioners, so while it's fun to think of the little guys outthinking the big ones.... that's people's retirement money they are playing with.
Oh no, I'm not having some "Yeah, stick it to the man" kind of reaction, I'm honestly going How TF Is This Legal To DO?!
The dumbest thing I've ever bought
was a 2020 planner.
"Does anyone ever think about Denethor, the guy driven to madness by staying up late into the night alone in the dark staring at a flickering device he believed revealed unvarnished truth about the outside word, but which in fact showed mostly manipulated media created by a hostile power committed to portraying nothing but bad news framed in the worst possible way in order to sap hope, courage, and the will to go on? Seems like he's someone we should think about." - Dave_LF
So what needs clarification? The most important thing to know is that buying a stock of a company makes you a part owner of that company. That means that you're entitled to a share of its profits, and entitled to a say on how it's run.
"Shorting" means selling something you don't own. So, if I sold my house, I'd receive whatever price we agreed upon, and I'd lose my house. That's not shorting.
But if I sold your house, I would receive whatever price we'd agreed upon, and I'd be responsible for providing your house. Which I don't own. So, when the loan comes due, I'd be responsible for buying your house from you, assuming you were willing to sell it, at whatever price it was going for at the time. So if the price went down, I would have made a profit. But if the price went up, I stand to lose quite a lot of money. I'd be responsible for handing over your house, even if it had skyrocketed in price.
If you buy a stock, your losses are limited to whatever you paid for it. Worst case scenario, the underlying company goes bankrupt and you lose what you paid. More likely, however, if you've made a bad choice of company, the price goes down and you decide whether to sell it at a loss, or hang on to it hoping the company recovers, in the meantime collecting the dividends while you decide. Or the price continues to rise, and the dividends you collect grow year after year. So even the worst case isn't all that bad.
On the other hand, if you short the stock, you immediately gain whatever you sold it for, but you are now responsible for supplying the actual stock, meaning at some point you will have to buy the stock and hand it over to whomever you sold it to. A stock's price can only fall to zero, it can never fall to negative something, but in theory it could rise and rise and rise, until you maybe have to buy the stock for several thousand to cover your short of... maybe fifty dollars?
That's what happened to the fund managers that shorted GameStop. They examined the company, decided that it wasn't doing well, and short-sold it. In other words, they sold shares of it that they didn't own, planning to buy it down the line at a much cheaper price, pocketing the difference between what they sold it for and what they bought it for. They weren't prepared for the price to suddenly skyrocket, causing them to lose more money than they actually had in the fund.
That's the part. How is that legal? How can you sell something you don't own!?
The dumbest thing I've ever bought
was a 2020 planner.
"Does anyone ever think about Denethor, the guy driven to madness by staying up late into the night alone in the dark staring at a flickering device he believed revealed unvarnished truth about the outside word, but which in fact showed mostly manipulated media created by a hostile power committed to portraying nothing but bad news framed in the worst possible way in order to sap hope, courage, and the will to go on? Seems like he's someone we should think about." - Dave_LF
I find it sort of amusing that much of the outrage online is about the Redditors "manipulating the market" when rally they're just taking advantage of the highly unethical practices of the hedgefunds
That's the part. How is that legal? How can you sell something you don't own!?
It's not legal for me to sell your house, but each stock exchange will have rules in place about short selling stock. They probably have a formula about how much they're allowed to short, how much collateral they require, how long they're allowed to wait before they have to acquire the stock, and how much they let the price change before they call it due.
As to why it's legal - well, that's an ongoing debate
I will add that I'm pretty uncomfortable with modern finance in general. In theory the value traders provide in exchange for their earnings is helping to direct capital toward the most profitable enterprises, but in practice an awful lot of it looks like nothing more than gaming and gambling.
Alatar wrote:I find it sort of amusing that much of the outrage online is about the Redditors "manipulating the market" when rally they're just taking advantage of the highly unethical practices of the hedgefunds
This.
I think the real reason everyone in the finance world is freaking tf out is that this situation exposes the modern stock market for the casino game that it is rather than some reflection of the strength of the economy.
If there was anything that depressed him more than his own cynicism, it was that quite often it still wasn't as cynical as real life.
That's the part. How is that legal? How can you sell something you don't own!?
They are borrowing the stock someone else owns through a brokerage.
Contact your broker to find shares of the stock you think will go down and request to borrow the shares. The broker then locates another investor who owns the shares and borrows them with a promise to return the shares at a prearranged later date. You get the shares. Don’t think you’re getting to borrow the shares for nothing, though. You’ll have to pay fees or interest to the broker for the privilege.
It's less like me selling Jude's house and more like me borrowing a book from him and selling it, in hopes that I can find a different copy of the same book cheaper before I need to give it back. Then the rest of you are appalled that I thought a Tolkien book is going to lose value, so you buy up all available copies. Now to give the book back to Jude, I have to pay whatever it is you all charging. And serves me right.
Sometimes, short selling can be a way to protect against losses or market volatility. If I already own a copy of the book that I bought cheaply in the past, my short is covered. I can give that book back to Jude.
If there was anything that depressed him more than his own cynicism, it was that quite often it still wasn't as cynical as real life.
Okay so if what is going on is totally legal (NO I don't know why it shouldn't be, it just seems shady AF) then why are the stock trading companies shutting down buying of those stocks??
The dumbest thing I've ever bought
was a 2020 planner.
"Does anyone ever think about Denethor, the guy driven to madness by staying up late into the night alone in the dark staring at a flickering device he believed revealed unvarnished truth about the outside word, but which in fact showed mostly manipulated media created by a hostile power committed to portraying nothing but bad news framed in the worst possible way in order to sap hope, courage, and the will to go on? Seems like he's someone we should think about." - Dave_LF
elengil wrote:Okay so if what is going on is totally legal (NO I don't know why it shouldn't be, it just seems shady AF) then why are the stock trading companies shutting down buying of those stocks??
Because they hate free market when it does not benefit the wealthy?
Idk
If there was anything that depressed him more than his own cynicism, it was that quite often it still wasn't as cynical as real life.
Alatar wrote:I find it sort of amusing that much of the outrage online is about the Redditors "manipulating the market" when rally they're just taking advantage of the highly unethical practices of the hedgefunds
It's Occupy Wall Street...except now they're hitting these guys where it hurts.
I know someone participating in this. This person admits to ignorance in how the stock market works. This person doesn't care. This person has student loans to pay off and a burning desire to stick it to the man.
elengil wrote:Okay so if what is going on is totally legal (NO I don't know why it shouldn't be, it just seems shady AF) then why are the stock trading companies shutting down buying of those stocks??
That’s actually not that uncommon. Whenever stock trading exchanges feel that the stocks trading volume is much higher than normal and the volume is not being driven by market fundamentals but rather by momentum/emotion, they do shut it down.
I remember a few instances clearly in India. If I’m not wrong, NYSE too.
'You just said "your getting shorter": you've obviously been drinking too much ent-draught and not enough Prim's.' - Jude
I know the exchanges do, but then all trading is halted for everyone. Robinhood is a broker, and they only halted buying stock. In this way, institutions are free to trade, but retail investors are prevented from buying the stock, which should bring the price down and help short sellers.
Or at least that's how I understand it.
If there was anything that depressed him more than his own cynicism, it was that quite often it still wasn't as cynical as real life.
