Comment by CrazyStat

Comment by CrazyStat 3 days ago

1 reply

Short selling has unbounded downside. If you borrow $1,000 to short sell TSLA and then it soars you might end up losing $100,000.

If you borrow $1,000 to buy TSLA your downside is limited—you can’t possibly lose more than $1,000.

unyttigfjelltol 2 days ago

In either case, your broker will liquidate you around $0. Not guaranteed, but very likely. This is the key risk.

Tether provides a good illustration of the principle I mentioned-- which I concede is a bit theoretical in the case of USD:

Tether is supposed to trade at $1 and gets press when it trades below. But, sometimes it also trades above, at $1.01, $1.02 and even perhaps $1.03. So, if you sold a lot of it thinking trading higher was impossible, you can be surprised.