Short Selling

Few days ago I got diarheaaaaa…My doctor told me that diarhea, at the time being, is contagious and it is being “lagi in”. It’s not surprising. Many of my colleagues are/were suffering it as well. 

Anyway, that’s not the point of this writing. While writing his diagnosis and recommendation (I got 1 day off hahaha…), we’re discussing about recent economic conditions; causes, effect, and when it will last. One interesting point was about short selling.

What is short selling?

This can be applied to commodities and other investments as well, but to make it easier, I’ll use stocks/shares.

For example, there is a company whose stocks are traded at USD 200 per stock. Somehow, you know it will go down to USD 100 per stock, let’s say within 1 week. The first thing you do is to borrow that stock from securities company (bukan perusahaan jasa keamanan) and then sell such stock to the market at the price of USD 200 per stock. Do you own the USD 200 cash? No, you won’t keep the money, but the securities company will keep it in its custody. If you want that money back, you have to return the stock which you borrowed earlier.

Within 1 week, your prediction come true (or perhaps you get insider information). Then you buy the stock from the market at USD 100 per stock. Then, you return the stock to the securities company and the company must return the USD 200 which held in custody.

How much profit you make? USD 100 (USD 200 – USD 100) and it’s real cash!

Pretty simple? Yes. Legit? Probably yes. Interesting? Absolutely. This way, you can make money in bearish and bullish market. Whether the prices are going up or down, you’re making money of it.  

What’s the catch? Parties are betting whether the prices are going down or going up and interestingly, one party can bet for both sides. The quality of traded instrument are not relevant anymore. People don’t care whether a company whose stocks are publicly traded has good business fundamental or not. It’s about information; whether the company is going to be busted, or it has a undisclosed profitable invention. This is information war and some parties may do whatever it takes to get the information. It’s about moving, influencing, and creating information.

This is not economy; this is a game.  The bets are fucking huge and that’s what happen now.

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1. Devi Girsang says:

   December 18, 2008 at 6:05 am

   Get well soon!

   Anyway, I believe insider tips are considered as insider trading thus it’s purely illegal

   Reply
2. boy says:

   December 18, 2008 at 1:17 pm

   thanks

   well, insider tips are legal until the authority finds out

   Reply
3. Andika says:

   December 19, 2008 at 12:37 pm

   Tempting yet scary. I couldn’t stop thinking billions or even trillions of rupiah used in this kind of operation and disrupting our fundamental economy. This is exactly the flaws of liberal economy, too much of an unregulated things will never do good on us..

   Reply
4. tere616 says:

   December 20, 2008 at 9:53 pm

   Get well soon too.
   Trading is still complicated toys for me.

   But, as far as I know, the trader got their gain is not always from the insider, but their discipline in sitting in front of their toys, looking to graph, and the “feeling” of how to close the deal.

   The feeling comes from the experience

   BTW, thanks for visiting mine, will add yours to mine also

   Reply
5. aquila says:

   December 21, 2008 at 9:27 pm

   Andika: too much regulations will never do good either..

   Tere: Experience is good, analysis skill is mandatory, but in this economy, control of information is power. Hey, I already added you in my blogroll, salam kenal yah

   Reply