Many people wonder why selling short
is legal. Why is it that some Wall Street guys sell stocks short and
make a ton of money off the innocent Independent Investors? Why is selling short allowed at all?
Why selling short is
legal has to do with supply and demand. Just like any business,
companies that offer stock have a finite amount of inventory–shares of
their stock. All publicly traded companies have a set amount of
outstanding shares that are available to trade among the general public.
The total number of outstanding shares of any stock is determined by
the company itself and NOT the stock market.
When a company goes public, which is when they have their Initial Public Offering IPO debut, they decide how many shares they will offer to the public. These shares are then sold to an underwriter, which is usually an investment bank. It resells the shares first to their preferred customers, and then the rest are offered out to the public on the day the stock IPOs.
When a company goes public, which is when they have their Initial Public Offering IPO debut, they decide how many shares they will offer to the public. These shares are then sold to an underwriter, which is usually an investment bank. It resells the shares first to their preferred customers, and then the rest are offered out to the public on the day the stock IPOs.
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Martha Stokes CMT
Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses
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