It absolutely is a gamble, a dangerous gamble. Essentially, when you short a stock, you “borrow” a stock from someone with the promise of giving it back at a certain time. You then sell it, wait for it to drop, then buy it back. You give it back, usually sharing some of the profits you’ve made with the person you’ve borrowed it from.
The problem with that is that if the stock goes up while you’ve borrowed it, you need to buy it back at the deadline of the deal at the price it happens to be at. Unlike normal stock trading where you can only lose up to the money you’ve invested, there is no limit to how much money you can end up losing shorting stocks if things don’t go the way you expected. This is how the whole GameStop stock shorting debacle happened.
The person you borrow from gets a small guaranteed win because you get paid a small amount for the privilege of borrowing their shares. The one who loses is whoever bought the shares at the higher price. That can be the person borrowing the shares, or it can be another person interacting with the stock market at the other end of your transaction.
Who pays when a stock is shorted? Genuinely curious. Shorting stocks is like gambling right? Who is the house in this scenario?
It absolutely is a gamble, a dangerous gamble. Essentially, when you short a stock, you “borrow” a stock from someone with the promise of giving it back at a certain time. You then sell it, wait for it to drop, then buy it back. You give it back, usually sharing some of the profits you’ve made with the person you’ve borrowed it from.
The problem with that is that if the stock goes up while you’ve borrowed it, you need to buy it back at the deadline of the deal at the price it happens to be at. Unlike normal stock trading where you can only lose up to the money you’ve invested, there is no limit to how much money you can end up losing shorting stocks if things don’t go the way you expected. This is how the whole GameStop stock shorting debacle happened.
When shorting stocks, a stock is borrowed, and then sold. Whoever they borrowed the stock from is the loser here
The person you borrow from gets a small guaranteed win because you get paid a small amount for the privilege of borrowing their shares. The one who loses is whoever bought the shares at the higher price. That can be the person borrowing the shares, or it can be another person interacting with the stock market at the other end of your transaction.