[RobertoG]

>>"In some of these stocks, the total quantity of stocks shorted (stocks borrowed and sold + using derivatives) is much more than the free float or the total number of shares held publicly. "

So, they short more stocks that exist. OK, I will not ask why this is allowed, but how is this done?

[TeMPOraL]

Stock [purchased by] A [lends to] B [shorts to] C [lends to] D [shorts to] E ...

There's one stock, but when people count shorts, they're counting the [shorts to] edges. That 140% ratio is essentially the (amount of [shorts to] edges) / (amount of stock in circulation).

[acd10j]

But Person A etc after lending no longer own stock, as they have lended it. They no longer have possesion of stock, If they now wants to sell their stock they first would need to get it it back from Person B, Which needs it back from Person C etc. Only one person can actually sell stock which is person E, as he has possession of stock. So if there is actual demand of selling a stock a high enough price, So in case person A wants his stock back he will either demand premature cancellation of his lending/leasing of stock, or wait for his lending period to end.

[bluGill]

Person A, and leaves it at the broker. Person B borrows not from person A, but the broker who. Person C buys the stock and again leaves it in the same broker. In the database there is 10 shares to person A, -10 to person B, and 10 to C. If A wants his stock back, then the broker just takes the stock from the pool not from person B.

Since there are a lot of people with stock at the broker there is no problem to shuffle around, it is all the same stock and an entry in the computer.

This of course leads to the real issue: you can buy stock and not leave it with your broker. This has been done, but only rarely (and not in this case)

[newswasboring]

This has been explained to me several times since last week. What nobody mentions is why is it done this way? It just feels unnecessarily obscure. What am I missing?

[dcolkitt]

The simpler alternative to this is the much vilified and misunderstand system of “naked shorting”.

Basically it would allow credit worthy institutions to meet demand by creating synthetic shares out of thin air. As long as they pay all the associated dividends and maintain enough capital to buy back the shares.

That would remove the entire long and convoluted process of locating borrow, and remove much of the market disruptions associated with “short squeezes”

[newswasboring]

or, you know, not allow shorting of borrowed loans which you can report as you owning them.

[TeMPOraL]

(Disclaimer: my expertise in stock trading extends to knowing how to spell "stonk", but I've been reading enough HN and Matt Levine to perhaps be better than a Markov chain at this.)

Why wouldn't it be? It sounds pretty straightforward mechanically. A short means I borrow a share from you and sell it to someone else today, buy it back some time later and give it back to you. That someone else has a bona fide stock, which they can lend to another shorter.

If you mean why the metric of "how many [shorts to] edges are active" is being tracked? I'm guessing it's the best proxy for how confident market is the stock is about to tank. Also, shorting as an abstraction is its own thing, so counting how many shorts there are is as useful as counting any other distinct market activity.

[seanhunter]

You open a margin account and post some collateral (usually cash or treasuries). You sign a margin agreement (which is essentially a credit aggreement) committing to pay up for any losses. The broker can use the posted collateral to cover losses and you will be asked to put up more margin if losses deepen beyond a certain point.

There are a few different ways to be short of a stock but the most common are to sell short in which case you have a few days to buy the stock or locate a borrow before the trade settles. Other ways to be short are to write call options which you can just do by selling that option to someone, or buy put options. In certain cases you can short a contract for difference or single stock future or short the return on the stock in an equity swap. For all of these you'll need your broker to facilitate.

Brokers don't work together which is how the aggregate position of all shorts can get larger than the total number of stocks in issue. This is obviously not a healthy situation but the brokers are relying on the collateral to enable them to make good any losses.

Finally some people may have a short as a partial hedge for an overall long position (eg "Crash put protection") so may be net long overall.

[seanhunter]

It's worth adding that in some of the examples I gave above you can be short a stock but settle as cash so you don't necessarily need to locate physical stock to pay up.

In those examples the price of the stock is just a reference point used to calculate the quantity of the cash payment between the two parties so although the short will lose money if the stock rises they are not "squeezed" in the sense they are not desperately searching for stock to buy at any price.

[kumarvvr]

Its like you leasing your house. Your assets still show the house. The lease holders address is the house. If you just see the records, there are two houses. But if you actually count, thereis 1 physical house.

[teruakohatu]

It's more like you lease a house from the owner and then lease it out again. There are two leases, but only one house. The house has been leased 200%.

[thargor]

No it's actually selling the leased house and needing to buy it back after your lease expires.

Selling leased stuff is not allowed for a reason.

[thargor]

No it's like you leasing your house. Selling the house to a third party. One party (your buyer) owns the house. The original owner also owns the same house, since he only leased it to you.

But houses are non- distinguishable. You don't need to give him back exactly that house, just an identical one.

[mmmateo]

When you lend someone a stock you borrowed, it’s considered an additional ‘stock shorted’

[nico_h]

And the entity that bought it from the short seller can lend it to someone else, leading to two short shares, etc...

Also, there is a difference between 100% of the stock and 100% of the float. Because in theory the institutions holding could alter their positions or lend their shares as well.

[imtringued]

>Also, there is a difference between 100% of the stock and 100% of the float.

With GME both of these are abnormally high. Either of them is enough to explain the short squeeze.

[hutzlibu]

How is it called, when the person you lend your stock to, lend it to someone else, who lends it again to you and you lend it to the first person again?

Madness?

(Anyway, my actual knowledge of the stock market is limited, but is my scenario a realistic one?)

[thargor]

No. Shorting is selling a stock you borrowed. Multiple borrows does not make a short.