InvestorQ : InvestorQ-Ask,Answer & Share All About Finance!
ishika Banerjee made post

Who are short sellers and what is their importance in the stock markets?

Answer
user profile image
vidhya Laxmi answered.
2 years ago


The very name of short sellers reminds you of opportunistic traders like George Soros and John Paulson. Most people fear stock market crashes because it results in the closure of positions and massive losses. Normally, speculators and short sellers are blamed for market crashes but ironically these short sellers can actually prevent the market from crashing sharply. Here is how! When traders are negative on the market, they will sell the stock or the future short. While it puts pressure on the market, it is not a free fall as the delivery positions are not liquidated. Secondly, when short sellers sell the stock at higher levels, they also come to buy back the stock at lower levels. This short covering helps in stabilizing the market limiting your losses in the process. However, in the absence of short sell traders, markets can go into a free fall with larger implications for investor wealth.