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Short selling - statistics & facts

Short selling is where an investor effectively bets on the price of a financial asset falling. To do this they borrow a certain number of shares (or some other asset), with the same quantity to be returned at a future date. They can then sell the borrowed shares and purchase the same number back once the price has fallen, thus making profit. Obviously, this strategy only works when the share price does fall – otherwise the borrowed stocks need to be repurchased at a higher price, causing a loss. While risky, there are impressive profits to be made from short selling – for example, profits from short selling at the beginning of the coronavirus (COVID-19) pandemic amounted to one billion U.S. dollars in one week for Tesla stock alone.

What are the risks of short selling?

Short selling can carry greater risks than traditional investments, as losses from traditional investments are limited to the initial cost. For example, if someone purchases 100 dollars of shares, the maximum they can lose is 100 dollars. However, as the price of stocks can theoretically increase infinitely, potential losses are also uncapped. Take again an initial investment of 100 dollars. If these shares are sold for 100 dollars but the price subsequently rises, the losses well would greatly exceed the initial investment should the price rise to, say, 500 dollars. The risks of short selling can be seen by looking again at Tesla, with the company generating the greatest losses over 2020 from short selling at over 40 billion U.S. dollars.

Retail investors and short selling

Early 2021 proved the potential for two technologies -– social media and online share trading – to fundamentally disrupt the practice of short selling. Online share trading platforms allow individuals to easily buy and sell shares, with the user base of Robinhood (the most well-known platform) growing rapidly from 2018 to 2020. Meanwhile, social media allows individuals to coordinate their actions towards a common end with an ease previously unimaginable. Bringing these two technologies together was the campaign of the ‘WallStreetBets subreddit’ in early 2020, who decided to deliberately cause losses to institutional investors by urging individuals to purchase shares of certain companies being shorted, thus driving up their stock price. The rise in the video game retailer GameStop’s share price was the most prominent example of this, with a similar campaign also occurring for the share price of cinema operator AMC. In the case of GameStop, the dramatic rise in the stock price caused by the campaign created losses for institutional investors estimated by some to be as high as 20 billion U.S. dollars in January 2021 alone.

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Coronavirus financial crash

Coronavirus market recovery

Online share trading

WellStreetBets campaigns

Other interesting statistics

Short selling - statistics & facts

Short selling is where an investor effectively bets on the price of a financial asset falling. To do this they borrow a certain number of shares (or some other asset), with the same quantity to be returned at a future date. They can then sell the borrowed shares and purchase the same number back once the price has fallen, thus making profit. Obviously, this strategy only works when the share price does fall – otherwise the borrowed stocks need to be repurchased at a higher price, causing a loss. While risky, there are impressive profits to be made from short selling – for example, profits from short selling at the beginning of the coronavirus (COVID-19) pandemic amounted to one billion U.S. dollars in one week for Tesla stock alone.

What are the risks of short selling?

Short selling can carry greater risks than traditional investments, as losses from traditional investments are limited to the initial cost. For example, if someone purchases 100 dollars of shares, the maximum they can lose is 100 dollars. However, as the price of stocks can theoretically increase infinitely, potential losses are also uncapped. Take again an initial investment of 100 dollars. If these shares are sold for 100 dollars but the price subsequently rises, the losses well would greatly exceed the initial investment should the price rise to, say, 500 dollars. The risks of short selling can be seen by looking again at Tesla, with the company generating the greatest losses over 2020 from short selling at over 40 billion U.S. dollars.

Retail investors and short selling

Early 2021 proved the potential for two technologies -– social media and online share trading – to fundamentally disrupt the practice of short selling. Online share trading platforms allow individuals to easily buy and sell shares, with the user base of Robinhood (the most well-known platform) growing rapidly from 2018 to 2020. Meanwhile, social media allows individuals to coordinate their actions towards a common end with an ease previously unimaginable. Bringing these two technologies together was the campaign of the ‘WallStreetBets subreddit’ in early 2020, who decided to deliberately cause losses to institutional investors by urging individuals to purchase shares of certain companies being shorted, thus driving up their stock price. The rise in the video game retailer GameStop’s share price was the most prominent example of this, with a similar campaign also occurring for the share price of cinema operator AMC. In the case of GameStop, the dramatic rise in the stock price caused by the campaign created losses for institutional investors estimated by some to be as high as 20 billion U.S. dollars in January 2021 alone.

Other interesting statistics

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