Afaik:
Shorters can tactically apply "non-genuine" selling pressure, which can "push the price down".
By non-genuine, I mean they aren't "genuine investors in the business" who are selling "their holding" (that they previously acquired due to "having faith in the prospects of the business" ),
because they have "lost faith in the prospects of the business".
This can, in turn,
trigger additional selling volume (more pressure) by triggering the stop losses of long holders, as well as triggering sells from TA traders by "gaming" TA indicators, as well as "exhausting" retail via relentless sp carnage...
If I borrowed say 10M shares and just started selling, say 100k every 20mins ...imagine what the price would do. Imagine if I did that even more aggressively to plunge the sp below a key TA support level. Imagine if I did that in spades upon release of an announcement. etc!
(of course, large holders can do the same thing with the shares they hold long ie. sell them tactically to create selling pressure and trigger more sell volume, to benefit in essentially the same way.... I have no doubt the big dogs do this often)
[The shorters are "usually" more despised by retail because, imo, they never had to build up a long position, they can simply and swiftly borrow a bunch of stock when the tactical opportunity is ripe, and unleash them into the "sell queue" to begin their game.
Unfortunately, it seems that the "stock market" is increasingly used as just a financial tool for such tactical "trading", with those having deep pockets, connections, direct mainframe links, "insto" capital raise opportunities, etc having a clear advantage over mere mortal retail punters. Imo the "unfairness" (shorts vs longs) arises because they KNOW their actions will trigger additional sell volume, they KNOW it will snowball, and I'd bet my bottom dollar (imo!) that some have knowledge of stop loss levels and volumes. Other issues like spoofing come to mind, too. ]
They can make money by, for example:
- Covering (buying back their shares sold short, to return to the lender) at a lower avg price than their avg sell (shorted) price. All they ned to do is be "early" in the snowballed selling, and take advantage of the other selling that they initiated or exaggerated.
- Covering via a company capital raise at lower price than their avg sell (shorted) price
- Associated "business activities" eg. related to some benefit associated with a depressed company stock price ... for example, a change of ownership or control transaction, either themselves directly, or via "incentive' from another party who does this..?
- Probably many other dodgy mechanisms, that are in direct conflict with the original and core intentions of the "stock market"...
Anyway, just some thoughts on the topic as we get another flogging.
IMO
DYOR
(20min delay)