Question

Discuss the rationale and main criticisms of short-selling restrictions.

Answer 1

Short selling is the sale of a security that is not owned by the seller. Short selling is motivated by the belief that a security's price will decline,enabling it to be buy back at a lower price to make a profit.

There are two main reasons for short selling -

Speculation for making profit by predicting stock movent.

For hedging , the objective of hedging is protection of profit or minimization of risk. However short selling received it's share of blame for market crises ,even being targeted in 2008 as a reason for financial stocks to continue plummeting .

However a new study suggest that not only is short selling a cause of market problems , but is even necessary for market to function correctly.

With the help of short selling traders can minimize their losses and can protect their profits.