What is short-selling?
For nearly as long as the stockmarket has been around, people have been betting against it
IT IS NOT quite the oldest trick in equity trading, but it is not far off. In 1602 the Dutch East India Company became the first to sell its shares to the general public. By 1608 Isaac le Maire, a disgruntled former director, had clubbed together a syndicate that sold stock it did not yet own for future delivery, then spread rumours about the company to drive the price down. By the time the shares came due for settlement, the syndicate could buy them from the market for less than they had originally sold them, booking a profit. The Dutch East India Company, catching wind of this, cried foul. These were “vile practices”, they said, “disadvantageous to the investors and particularly the many widows and orphans” who had shares in their firm. What is short-selling—and is it a bane or a boon?
From the February 11th 2023 edition
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