In recent years, the act of short selling has gained significant attention. Notable incidents involving short selling attacks on companies like Grenke AG and Nikola Corp, as well as short squeezes on stocks such as GameStop and AMC Entertainment, have thrust this strategy into the global spotlight.
Short selling often receives negative criticism due to its nature of betting against a company's success. Nonetheless, numerous studies have revealed the numerous benefits it brings to the capital markets.
Short selling, also referred to as 'shorting' or 'going short', is a strategic approach that seeks to capitalize on a decrease in the price of a security. This sophisticated trading strategy is commonly employed by experienced investors like hedge funds, challenging the traditional concept of investing. In contrast to conventional 'long' investors who purchase securities anticipating their value to increase, individuals going 'short' take a different stance by wagering against securities, anticipating their decline in value.
Short selling is a lawful practice, yet it operates within a framework of several limitations and continuous oversight by financial authorities like FINRA and the SEC.
In instances of market turmoil, when stock prices experience significant declines, regulatory bodies may occasionally impose temporary restrictions or even prohibit the utilization of short selling until stability is regained.