Why Selling Short Stocks is Legal

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.

See a list of ways total number of outstanding shares of stock for a company might change, how Supply and Demand in the stock market works, how Selling Short maintains market liquidity, a little history on Bear Markets, and why a strong Stock Market needs Selling Short on my main website TechniTrader.com CLICK HERE

Curious about learning to sell short stocks? 
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Trade Wisely,

Martha Stokes CMT 


Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses

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