And many traders are betting that the stock price will continue to fall further.

And many traders are betting that the stock price will continue to fall further.

Shares of Trump Media have erased all their gains since they began trading under the ticker DJT last month.

The stock closed down more than 8% Monday at $37.17 after falling about 11% earlier in the day. It had traded above $79 a share on March 26, the day of its debut.

But experts say it’s hard to draw any firm conclusions about what the stock price’s movement means. That’s because so many available shares — about 12%, one of the highest ratios of any active stock listing — reflect traders’ bets that the stock will fall, said Ihor Dusaniwsky, managing director at S3 Partners, a data and predictive analytics company.

This is called short-selling.

  • maynarkh@feddit.nl
    3·
    3 months ago

    You do have to pay for it, yes.

    So here’s how you get money out of shorts:

    • You have 0 dollars. Let’s assume DJT costs 1 dollar now.
    • You borrow 100 DJT at 1 dollar, and immediately sell it. You have 100 dollars, and owe 100 DJT to the lender.
    • DJT goes to 50 cents.
    • You buy 100 DJT at 50 cents, and pay your debt back. You now have 50 dollars and 0 DJT.

    The point is similar to normal (long) trading, except you sell high first and buy low instead of normally buying low first and then selling high. You take a loan (in stock) to cover the intermediate time.

    And why is this bad for the stock value:

    • Let’s assume there are 500 DJT in existence on the market, all at your broker.
    • You borrow 100 DJT. There is now 600 DJT in existence, 500 at your broker (they still have an IOU for the 100) and 100 with you.
    • You sell the 100 DJT on the market. The value of DJT goes down, since it effectively undergoes inflation.

    So the question you might have is why does the broker say it has 500 after it has lent out 500. The answer in short (no pun intended) is they make the rules, literally. The stock market, the SEC, all of that is just financial institutions governing themselves, with very little government oversight. The SEC is literally the biggest banks on Wall Street, because the government says they are the only ones smart enough to police themselves.

    If this resembles fractional reserve banking, it’s because it’s exactly the same principle. If you don’t know what that is, it’s just banks doing the same “it exists both here and there” thing with loans, causing inflation of currency.

    And if you question “well isn’t this just an infinite money glitch, why don’t they do it infinitely?”, there are some limits on having to keep some reserves to prevent bank runs. That said, this market is 100 times as big as the world’s combined yearly GDP, so you might wonder how effective those rules are.