So I'm slowly getting caught up on all this business but I'm still confused about one thing - I keep hearing people talk about the fact these hedge funds have shorted over 100% of available shares. The number fluctuates between 120-140%, but it's a big part of the reason why this is getting so much attention.
My question is this - how is it possible for them to sell something that literally does not exist? If 100% of available shares are shorted, how can they borrow shares that don't exist, to then later buy back said non-existent shares? What am I missing?
So basically if I understand it, it’s that they borrow the stock from a broker -> sell stock -> buy back when cheaper -> give back borrowed stock -> profit.
The issue is that the people they sold it to lent it out before they could buy it back, meaning that the stock is now loaned out to two different people despite being one stock, because the whole system is fucking dumb
So the original short seller borrowed the stock, and then lent it to another person who was borrowing the stock, and the second borrower is the one selling it on the market?
If I read it correctly, and that's a massive if, I cannot stress enough I didn't read very closely, but it was against the rules to do that in the first place.
I speculate it's the kind of thing a bankruptcy would resolve but until then they'd just pay interest on the short position.
So I'm slowly getting caught up on all this business but I'm still confused about one thing - I keep hearing people talk about the fact these hedge funds have shorted over 100% of available shares. The number fluctuates between 120-140%, but it's a big part of the reason why this is getting so much attention.
My question is this - how is it possible for them to sell something that literally does not exist? If 100% of available shares are shorted, how can they borrow shares that don't exist, to then later buy back said non-existent shares? What am I missing?
So basically if I understand it, it’s that they borrow the stock from a broker -> sell stock -> buy back when cheaper -> give back borrowed stock -> profit.
The issue is that the people they sold it to lent it out before they could buy it back, meaning that the stock is now loaned out to two different people despite being one stock, because the whole system is fucking dumb
So the original short seller borrowed the stock, and then lent it to another person who was borrowing the stock, and the second borrower is the one selling it on the market?
If I read it correctly, and that's a massive if, I cannot stress enough I didn't read very closely, but it was against the rules to do that in the first place.
I speculate it's the kind of thing a bankruptcy would resolve but until then they'd just pay interest on the short position.
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