|
Not a finance guy, but mu understanding is that shorting can have unlimited losses — you are borrowing an amount of stock at Price $X and selling it at the market price, say 100 shares of TSLA at $400 this week. You are betting that the stock price will go down, and you'll be able to buy it back and repay the 100 shares of stock at perhaps $200/share, pocketing the difference. BUT, and this is a big BUT, if the price goes up in the meantime, your position goes negative, e.g., if it goes to $800, you are looking at a $40,000 loss. If it goes sufficiently negative that it approaches the point where the other assets at your broker cannot cover such a loss, you will be automatically sold out of your position at a loss. This means the broker will use the other assets in your account to automatically purchase TSLA shares and return them to the loaning party, all at market price. When there is a large short interest in a stock, this can happen simultaneously all over the market, driving the price to insane levels, as every short must cover their position. This is called a "Short Squeeze". Even if the shorts were right in the end, they all lost. This happened with Porsche a decade ago, driving it's price well over $1000, when it had been $80, and more recently with Gamestop. There are a LOT more better explanations than mine out there, or maybe some actual finance market guys/gals can weigh in. Here's one [0]. In any case, I hope this helps. [0] https://www.investopedia.com/articles/investing/100913/basic... |