LogFAQs > #950123806

Epyo posted...

I don't understand this part either.

BUT my guess is, the owners of the shares, when they lend out the shares, they charge a fee upfront, that isn't based on the share value, just some constant fee. So, the owners of the shares do make money off of this--in fact, it's probably risk-free easy money for them, since they get their money immediately, and the borrowers are obligated to give the shares back in the end.

Whereas, the people borrowing the shares, are only going to make money if the Short goes according to plan, so there's risk there. BUT they make more money than the original share owners, as long as it all goes right.

Nope. The difference where you close the position makes you the same percentage of return on investment no matter where it is. So if you short a stock at $100 and it goes to $50, you make 100% return on investment. And if you buy a $50 stock and it goes to $100, you also make a 100% return.

It's a very risky practice with no special benefits. It's usually done on pump and dumps, where prices are seen as way over inflated and eventually coming back down, or failing companies. But since no one knows what the market will do, there is always infinite potential losses when shorting a stock, whereas investing in a stock, you only risk to lose what you invested in the first place.

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- Blur -
Welcome to your Divinity.