Short sales are extremely risky due to the low number of buyers, high volatility and a high possibility of loss.
If a short seller is confident that the price of their short position can rise by at least a small amount at some point in the future, they could sell (possibly without even selling shares) and buy more. But at some point in the middle of the future, there will be very few buyers. A big short sale can easily take away a large amount of market share. And you are buying shares on the assumption that when the price goes up, there will be many new investors. Even if there is only a small amount of new investment, if the price rises even a few points, the value of the shares has already fallen, so the short seller might be a losing player. The only good option is to wait for prices to reach a level that no one is shorting. This point is in your own best interest given that investors tend to sell their shares during dips in the market and buy them shortly afterward when prices bounce back. If this happens, a short seller may become an investor and take away your gain. A short seller is a short seller for investors.
On the other hand, if you are holding shares that you intend to sell at a later date or at below the price you have bought them at – the most appropriate course of action is to sell off your shares and take a loss. That is to say, if after a certain period they are sold low, then the stock price has risen, so you are making a loss (but at least you didn’t lose all of the gains). If the stock is below your original position, your short position will not be profitable.
So it is not necessarily illegal to short trade but it does take some discipline and practice if you are to avoid costly losses.
Is scalping trading in a bubble?
Not in this scenario. Stock prices rise over large distances. Some of this is due to speculation. This is what we would know as a bubble. Some investors become addicted to speculation and make a huge profit by buying into these large swings in the market. This causes short selling to increase in volume. Some large investors may even go so far as to sell a large portion of their holdings and sell their shares (by having their own short sale on their record) without having any loss.
A bubble would be a very short term and it would look like an exponential increase in price. It will most likely last a relatively
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