Short selling has been a target of ire since at least the eighteenth
century when England banned it outright. It was perceived as a
magnifying effect in the violent downturn in the Dutch tulip market in
the seventeenth century. ...The term ..."short" is used because the
short seller is in a deficit position with his brokerage house.
Short sellers were blamed for the Wall Street Crash of 1929.
Regulations governing short selling were implemented in the United
States in 1929 and in 1940. Political fallout from the 1929 crash led
Congress to enact a law banning short sellers from selling shares
during a downtick; this was known as the uptick rule, and was in
effect until 2007. President Herbert Hoover condemned short sellers
and even J. Edgar Hoover said he would investigate short sellers for
their role in prolonging the Depression. Legislation introduced in
1940 banned mutual funds from short selling (this law was lifted in
1997). A few years later, in 1949, Alfred Winslow Jones founded a fund
(that was unregulated) that bought stocks while selling other stocks
short, hence hedging some of the market risk, and the hedge fund was
born.
Concept; Plain vs Naked
To profit from the stock price going down, short sellers can borrow a
security and sell it, expecting that it will decrease in value so that
they can buy it back at a lower price and keep the difference. The
short seller owes their broker, who usually in turn has borrowed the
shares from some other investor who is holding his shares long; the
broker itself seldom actually purchases the shares to lend to the
short seller. The lender of the shares does not lose the right to sell
the shares.
Short selling is the opposite of "going long." The short seller takes
a fundamentally negative, or "bearish" stance, anticipating that the
price of the shorted stock will fall (not rise as in long buying), and
it will be possible to buy at a lower price whatever was sold, thereby
making a profit ("selling high and buying low," to reverse the adage).
The act of buying back the shares which were sold short is called
'covering the short'. Day traders and hedge funds often use short
selling to allow them to profit on trading in stocks which they
believe are overvalued, just as traditional long investors attempt to
profit on stocks which are undervalued by buying those stocks.
[naked]
Naked short selling is a case of short selling the shares without
first arranging a borrow. The Securities Exchange Act of 1934
stipulates a settlement period up to three business days before a
stock needs to be delivered, generally referred to as "T+3 delivery".
If the stock is illiquid or simply has a small number of outstanding
shares, finding the borrow can be difficult to arrange. In these cases
the trader normally arranges for the borrow before making the trade,
to ensure delivery. In the case when a borrow cannot be arranged
within that time period and the shares cannot be given to the buyer,
the trade is considered to have "failed to deliver".
The SEC states that "Naked short selling is not necessarily a
violation of the federal securities laws or the Commission's rules,"
and clarifies that in some circumstances, it can contribute to market
liquidity. However, naked shorting to drive down share prices violates
US law. In recent years, a number of companies have been accused of
using naked shorts in order to make profits at the expense of share
prices.
http://en.wikipedia.org/wiki/Short_(finance)
http://en.wikipedia.org/wiki/Naked_short_selling
Further advise to make out like a bandit in a stupid Bush economy;
http://en.wikipedia.org/wiki/Flipping
http://en.wikipedia.org/wiki/Contrarian
http://youtube.com/watch?v=GEtZlR3zp4c
