Naked Short Selling
Naked short selling is a trading strategy used by investors to make profits from the decline in the price of a security. It involves selling a security that the investor does not own, or has not borrowed, in anticipation of a price decline. The investor then buys the security back at a lower price, making a profit on the difference. Naked short selling is considered a form of market manipulation and is illegal in many countries.
History of Naked Short Selling
Naked short selling has been around since the early days of stock trading. It was used by traders to take advantage of price discrepancies between different markets. In the late 1990s, the practice became more widespread as technology made it easier to execute trades quickly and anonymously. This led to concerns about market manipulation and the potential for large losses for investors. In response, many countries have implemented regulations to limit the practice.
Comparison of Naked Short Selling and Traditional Short Selling
| Naked Short Selling | Traditional Short Selling |
|---|---|
| No ownership of security | Ownership of security |
| High risk | Low risk |
| Illegal in many countries | Legal in most countries |
Summary
Naked short selling is a high-risk trading strategy that involves selling a security that the investor does not own or has not borrowed. It is illegal in many countries due to concerns about market manipulation. For more information about naked short selling, investors can visit the websites of the Securities and Exchange Commission (SEC) in the United States and the Financial Conduct Authority (FCA) in the United Kingdom.
See Also
- Short Selling
- Market Manipulation
- Securities and Exchange Commission (SEC)
- Financial Conduct Authority (FCA)
- Margin Trading
- Day Trading
- Options Trading
- Hedge Funds
- Derivatives
- Arbitrage
