Short-selling is in the news these days. Short selling is a technique employed by professionals investors to profit from falling asset prices. Given the wild price action of AMC and other meme stocks, the financial media is claiming that “naked” short-selling is running rampant.
In today’s video, Mike will discuss the concept of short selling, which plays an important role in price discovery. When people sell short, they borrow stock from another investor and sell it. Naked short selling is an illegal practice of selling stock one does not own and cannot borrow.
Active market participants buy and sell stocks depending on their beliefs concerning price versus value. When prices are too low, they buy. When prices are too high, they sell. If they do not own the stock, they short sell. It’s all part of the process of determining the correct prices for every asset.
Photo by Georgia Maciel from Pexels
