/biz/ - Business & Finance

>>57456834
>Buying shares is atleast equivalent to loaning your money to a company in exchange for a portion of future profits.
no it isn't. you're not an underwriter.

You're making a bet with an entity that certain stock will go lower. If it does you make money, if it goes up the entity makes money. That's super simplified.

>>57456834
>reddit pic
>"ELI5"
Go the fuck back niggerfaggot.

>>57456854
But a bet like that would imply that someone intends to make a profit with the price going down. How does it benefit any investor if a company is not doing well? Is it literally a pure bet on the stock prices or is there some mechanism underneath?

>>57456841
Could you elaborate?

>>57456883
yes, its literally gambling. when you short a stock, there is someone on the other side going long

>>57456898
no

>>57456898
well that's just rude

>>57456834
if you believe a stock is overvalued, you can borrow and sell it, with the intent that you will later buy back and return the shares to the lender. that's all it's supposed to be. the degen layers built on top don't change the underlying mechanism

>>57456834

shorting:
you sell with the promise to buy later

longing:
you buy with the promise to sell later

having a short position simply means the value of that position goes up if the price of the underlying (the thing you are short) goes down.

the term "short" on its own does not imply how that position is achieved. it can be achieved via various instruments.

>>57456970
Could you explain where lending comes in all this?

>>57456989
>sell with the promise to buy later
I'm afraid I don't follow.

>>57457003
I understand what it means on the surface. What I don't get is how it's meant to serve an economy.

>>57456926
The guy going long is only in it because this system has already been established. But how did it start in the first place?

>>57457024
you sell 5 btc, after a day, you buy 5 btc
(you opened and closed a position)
the difference in price is your profit / loss

you have collateral, meaning, you say to the casino, I pledge that money to buy later

if the price goes up too much the casino will say, I need to execute the buy promise now before it is too later, you get liquidated

>>57457081
I guess that sort of makes sense. But it seems like I'm originally borrowing money for the 5BTC before I can sell them in the first place. What incentive does the lender have to lend me that money in the first place?

>>57457078
Hedging for agriculture. Pretty much how interest in general got started.

Farmers sell future harvest. If you think this harvest is going to be bad, you buy it of anyone who will sell you future harvest and when the time comes you are the only one with claims and get killed. You just longed the value of grain market. If you know grain will do great and will be next to worthless, maybe you can create some "IOU sum grain" and sell it for a quick profit and give them their grain when it is worthless. If you don't even have sum grain this is called naked shorting. If you never planned on settling unless favorable it is a scam.

>>57457053

it serves the economy to the same degree that any other trading serves the economy. markets have the net effect of pricing things. things being priced "accurately" is the net benefit to the economy.

not every trade "directly" benefits the economy. lots of trading is just a zero sum pvp game of people expressing different opinions; some make money and some lose.

shorting **can** benefit the economy by giving information to the market that something is overpriced. similar to being long an asset. it's the same thing.

>>57457154
they get paid interest. also they get your collateral if you fuck up

>>57457154
to open a position - fee
to carry a position - fee every 4 hours
to close a position - fee
PAY UP

>>57457154
You can't get a loan for that unless you're a big boy trader. Us normal plebs can only make these trades with full collateral. So there's essentially no risk on their end. If your short fails, they just take your collateral, plus tips (fees).

>>57457161
This makes the whole thing a lot more tangible and a little easier to understand. Thanks.

>>57457170
>>57457175
>>57457175
>>57457179
Thanks anons, I'm a little wiser now.

Reddit Thread.

>>57456834
>I borrow a can of gasoline worth $100 from you.
>I immediately sell the can I borrowed from you for $100 to someone else.
>A week later, the price of a can of gasoline is now $90.
>I buy a can of gas for this new price, and hand it back to you.
>I've now made a cool $10.

>>57456834
these cats are expensive as fuck

>>57457618
But isnt this impractical? Might spill gasoline, and its only 10 dollaroos.

>>57457688
> Thinking we're actually talking about gasoline
Anon....

>>57457688
Now imagine that I did the same, but with 1000 cans of gasoline at a time.
Also if you spill the gasoline, you simply lick it back up.

>>57456834
it's the centralized exchanges that lend you assets to go short on them and they profit off you paying interests on your positions. there is no human that is lending you their personal property assets

Shorting is just the way the market conveys information to an investor that an asset, an industry or a company is overvalued, or bankrupt or in some kind of trouble.
Therefore the investor can see that his money shouldn't be invested in it.
When people are "long" an asset they are buying it, the price is increasing and the number of longs tells an investor that an asset, industry or company is valuable and worth putting money into.
Shorting does the opposite.
The more short positions that are open, the more information is being conveyed that investment is a risk.
Theoretically longs tell investors what is valuable to the economy and shorts provide the use of telling you what sectors of the economy or industry are not valuable to the economy.
Theoretically shorts and longs are useful things which direct investment into useful sectors, withdraw funding from useless sectors, and help balance an economy