- cross-posted to:
- politics
- cross-posted to:
- politics
And many traders are betting that the stock price will continue to fall further.
Shares of Trump Media have erased all their gains since they began trading under the ticker DJT last month.
The stock closed down more than 8% Monday at $37.17 after falling about 11% earlier in the day. It had traded above $79 a share on March 26, the day of its debut.
But experts say it’s hard to draw any firm conclusions about what the stock price’s movement means. That’s because so many available shares — about 12%, one of the highest ratios of any active stock listing — reflect traders’ bets that the stock will fall, said Ihor Dusaniwsky, managing director at S3 Partners, a data and predictive analytics company.
This is called short-selling.
I’m still confused by this… doesn’t it mean you have to pay for the stock if it doesn’t fall as well? So in that case, it helps benefit Truth Social?
I guess I’m not understanding who benefits if shorting doesn’t work.
So you borrow a share of a stock from someone, promising to pay them back the shares and a little fee for them not having their shares available. You turn around and immediately sell their share. Let’s say the share was worth 100$, so you pocket that. You anticipate the stock dropping to 80, and if you’re right, when that happens you buy a stock of that company later and then give that stock to the guy you borrowed it from. You make 20$, pay that little fee, and go about your day.
If it doesn’t hit your target though, at some point you decide to cut your losses, since the fees associated with not giving back the stock are prohibitively high by design. If the share stayed at 100$, you just lose that little fee. If its 150$, you paid the fee and 50$.
You always buy a stock later, but shorting weakens a stock because you sold first and that reflects in the stocks price, potentially triggering other sales.
If you wanna say “ive never bought truth social stock” you can’t short, although you can still say “I’ve never invested in truth social”.
Whoever actually owns the stock and whoever you sold it to both benefit from the stock increase. Basically, everyone wins except the one shorting.
In other words, that would end up generating money for Trump himself.
Which sounds like a good enough reason not to make that gamble.
Well the stock rising does generate money for Trump no matter if anyone shortsells it.
If you shortsell, you position yourself against the stock.
If it rises Trump wins and you lose.
If it falls Trump loses and you win.
But neither way is it you shorting the stock that makes Trump win.
He wins if the company represented by the stock actually grows in value and the stock price rises or if idiots buy his stocks and make the price go up. But I predict that after a brief rush on the stock by his gullible idiots in the beginning noone will want to buy his stock anymore.
That’s why I would consider shorting it, because I predict the stock to keep falling.
This I predict because I think the company that is represented by the stock is shit and basically worthless, which the stockprice should represent in due time.
A shortseller thus wants to profit off of Trumps losses.
Welcome to the whacky world of derivatives, Squid. The Big Short movie explains shorting stock pretty well while also covering how the 2008 financial crisis happened. Pretty good movie imho.
I’m still very confused despite people doing their best to explain it to me. But I’m glad it sounds like Trump wouldn’t benefit.
I’ll try to explain it with less jargon. You go to a brokerage firm and say you want them to sell 100 shares of stock they own and give you that money as a loan. You agree to give them that same number of shares of stock back later at an agreed to date (usually within 90 days???). You hope that when you are required to give them back that stock it is cheaper for you to buy your own shares of it. They sell at $50/share and give you a loan for $5,000, but when you have to give their shares back to them they only cost you $25/share. You only had to spend $2500 to pay back a $5000 loan.
You do have to pay for it, yes.
So here’s how you get money out of shorts:
The point is similar to normal (long) trading, except you sell high first and buy low instead of normally buying low first and then selling high. You take a loan (in stock) to cover the intermediate time.
And why is this bad for the stock value:
So the question you might have is why does the broker say it has 500 after it has lent out 500. The answer in short (no pun intended) is they make the rules, literally. The stock market, the SEC, all of that is just financial institutions governing themselves, with very little government oversight. The SEC is literally the biggest banks on Wall Street, because the government says they are the only ones smart enough to police themselves.
If this resembles fractional reserve banking, it’s because it’s exactly the same principle. If you don’t know what that is, it’s just banks doing the same “it exists both here and there” thing with loans, causing inflation of currency.
And if you question “well isn’t this just an infinite money glitch, why don’t they do it infinitely?”, there are some limits on having to keep some reserves to prevent bank runs. That said, this market is 100 times as big as the world’s combined yearly GDP, so you might wonder how effective those rules are.